Tor Tolhurst, Purdue University
Bubbles in the Field
Date and Location
Thursday, October 7, 2021, 4:10 PM - 5:30 PM
Online Meeting, Zoom
Dispositive evidence of bubbles in the field has proven elusive. Even if bubbles were not rare, they would be hard to find because of an identification problem. A bubble occurs when an asset’s price exceeds its fundamental value, but fundamental values are latent (to both economists and the market). Thus, bubble tests have required pivotal assumptions, such as correct specification of a structural valuation model, which are fragile and opaque. I propose another approach to detect bubbles in the field. I use the price of a close substitute as a quasi-control asset, which models the asset of interest’s path of prices for a no-bubble counterfactual. I show this strategy directly tests the no-bubble null hypothesis. I also show the strategy is a generalization of other bubble tests that have similarly palatable assumptions, but have failed to detect a bubble. As a necessary aside, I derive Cantelli’s inequality for finite samples, which I use to show the identifying assumptions need not be fragile. I apply the strategy to two independent cases in the field. In both, I find strong, robust, and economically-significant evidence of bubbles, which is backed by data supporting the identifying assumptions. The evidence I find of bubbles in the field supports the growing consensus amongst theorists and lab experimentalists that bubbles do indeed exist in asset prices.
Subscribe to Upcoming Seminars
Individual seminar and workshop announcements are circulated via separate mailing lists. To subscribe, send an email to the relevant list:
- Click here to subscribe to the Departmental Seminars.
- Click here to subscribe to the Agricultural Economics Workshop.
- Click here to subscribe to the Development Workshop.
- Click here to subscribe to the Econometrics Seminars.
- Click here to subscribe to the Environmental and Resource Economics Workshop and the Environmental and Energy Economics Workshop.
Contact Us2116 Social Sciences and Humanities
University of California, Davis
One Shields Avenue
Davis, CA 95616
Main Office: 530-752-1515
Student Advising Services: 530-754-9536
DeLoach Conference Room: 530-752-2916
Main Conference Room: 530-754-1850