Stock market bubbles and anti-bubbles |
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| Affiliation: | 1. School of Social Audit, Nanjing Audit University, Nanjing, China;2. School of Accounting, Economics and Finance, Curtin Business School, Perth, Australia;3. Department of Finance, National Taiwan University, No.1, Sec 4, Roosevelt Rd, Taipei City 10617, Taiwan;1. Alfaisal University, Saudi Arabia;2. University of Leicester, UK;3. University of Lincoln, UK;4. University of Manchester, UK;1. United Arab Emirates University, United Arab Emirates;2. Montpellier Business School, France |
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| Abstract: | Using a simple model of equity valuation, we define stock market bubbles and anti-bubbles as periods in which the dynamics of valuation is temporarily explosive. We identify a mechanism for the creation and destruction of bubbles and anti-bubbles that depends on the interaction between valuation and expected change in corporate profitability. Topically, we find that valuation dynamics are explosive in 2017, suggesting the possible formation of an equity bubble in the US. |
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