Bubbles can persist because investors are better off riding bubbles. We define bubbles in a natural way as significant, prolonged deviations from fundamental values measured by the well-known asset pricing models. Our real-time bubble detection system shows that –using US industry returns–...

Stock market crashes are rare events. This complicates a thorough quantitative empirical analysis of crashes and their probable causes. We introduce the concept of an industry crash and study the presence of these crashes in 48 US industry indexes over the period 1926 to 2004. The concept of an...

We empirically analyze rational investors' optimal response to asset price bubbles. We define bubbles as a sudden acceleration of price growth beyond the growth in fundamental value given by an asset pricing model. Our new bubble detection method requires only a limited time-series of historical...