Many have put forth reasons why the stock market has climbed to new and unprecedented heights. Two reasons are examined: (1) investors are expecting prices to increase and are bidding up price irrationally; (2) investors have moved to a long-term strategy and are requiring a lower risk premium. For the latter reason, the rise in stock prices is due to a change in the fundamentals, and for the former reason the rise represents the classical bubble. The evidence indicates that risk preferences have changed while price momentum does not appear during bubble periods.
Economopoulos, Andrew J. and Shetty, Avinash G., "The Search for Stock Market Bubbles: An Examination of the NYSE Index" (2002). Business and Economics Faculty Publications. 24.
Behavioral Economics Commons, Macroeconomics Commons, Portfolio and Security Analysis Commons
Originally published in Pennsylvania Economic Review, Volume 11, No. 1, Spring 2002. Copyright by the Pennsylvania Economic Association.