Journal of Finance 1988

Bubbles, Fads and Stock Price Volatility Tests: A Partial Evaluation

Kenneth D. West^1,2,3

¹ U.S. National Science Foundation · ² National Bureau of Economic Research · ³ University of Wisconsin–Madison

Abstract

This is a summary and interpretation of some of the literature on stock price volatility that was stimulated by Leroy and Porter 28 and Shiller 40. It appears that neither small-sample bias, rational bubbles nor some standard models for expected returns adequately explain stock price volatility. This suggests a role for some nonstandard models for expected returns. One possibility is a “fads” model in which noise trading by naive investors is important. At present, however, there is little direct evidence that such fads play a significant role in stock price determination.

DOI

10.2307/2328188

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