Probability of price crashes, rational speculative bubbles, and the cross-section of stock returns
Abstract
We estimate an ex ante probability of extreme negative returns (crashes) of individual stocks as a measure of potential overpricing and find that stocks with a high probability of crashes earn abnormally low returns. Stocks with high crash probability are overpriced regardless of the level of institutional ownership or variations in investor sentiment, and moreover, they exhibit increasing institutional demand until their prices reach the peak...
Paper Details
Title
Probability of price crashes, rational speculative bubbles, and the cross-section of stock returns
Published Date
Apr 1, 2019
Volume
132
Issue
1
Pages
222 - 247
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