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Showing papers by "Andrei Shleifer published in 2017"


Journal ArticleDOI
TL;DR: Wang et al. as discussed by the authors showed that Chinese housing prices rose by over 10 percent per year in real terms between 2003 and 2014 and are now between two and ten times higher than the construction cost of apartments.
Abstract: Chinese housing prices rose by over 10 percent per year in real terms between 2003 and 2014 and are now between two and ten times higher than the construction cost of apartments At the sa

243 citations


Posted Content
TL;DR: The authors revisited La Porta's (1996) finding that returns on stocks with the most optimistic analyst long term earnings growth forecasts are substantially lower than those for stocks having the most pessimistic forecasts, and presented several further facts about the joint dynamics of fundamentals, expectations and returns for these portfolios.
Abstract: We revisit La Porta’s (1996) finding that returns on stocks with the most optimistic analyst long term earnings growth forecasts are substantially lower than those for stocks with the most pessimistic forecasts. We document that this finding still holds, and present several further facts about the joint dynamics of fundamentals, expectations, and returns for these portfolios. We explain these facts using a new model of belief formation based on a portable formalization of the representativeness heuristic. In this model, analysts forecast future fundamentals from the history of earnings growth, but they over-react to news by exaggerating the probability of states that have become objectively more likely. Intuitively, fast earnings growth predicts future Googles but not as many as analysts believe. We test predictions that distinguish this mechanism from both Bayesian learning and adaptive expectations, and find supportive evidence. A calibration of the model offers a satisfactory account of the key patterns in fundamentals, expectations, and returns.

102 citations


Posted Content
TL;DR: In this paper, the authors evaluate Fama's claim that stock prices do not exhibit price bubbles and present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio does not, on average, predict unusually low returns going forward; (2) such sharp price increases predict a substantially heightened probability of a crash; and (3) attributes of the price run-up, including volatility, turnover, issuance, and the price path of the runup can all help forecast an eventual crash and future returns.
Abstract: We evaluate Eugene Fama’s claim that stock prices do not exhibit price bubbles. Based on US industry returns 1926-2014 and international sector returns 1985-2014, we present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio does not, on average, predict unusually low returns going forward; (2) such sharp price increases predict a substantially heightened probability of a crash; (3) attributes of the price run-up, including volatility, turnover, issuance, and the price path of the run-up can all help forecast an eventual crash and future returns; and (4) some of these characteristics can help investors earn superior returns by timing the bubble. Results hold similarly in US and international samples.

4 citations


Posted Content
TL;DR: This article revisited La Porta's (1996) finding that returns on stocks with the most optimistic analyst long term earnings growth forecasts are substantially lower than those for stocks having the most pessimistic forecasts, and presented several further facts about the joint dynamics of fundamentals, expectations and returns for these portfolios.
Abstract: We revisit La Porta’s (1996) finding that returns on stocks with the most optimistic analyst long term earnings growth forecasts are substantially lower than those for stocks with the most pessimistic forecasts. We document that this finding still holds, and present several further facts about the joint dynamics of fundamentals, expectations, and returns for these portfolios. We explain these facts using a new model of belief formation based on a portable formalization of the representativeness heuristic. In this model, analysts forecast future fundamentals from the history of earnings growth, but they over-react to news by exaggerating the probability of states that have become objectively more likely. Intuitively, fast earnings growth predicts future Googles but not as many as analysts believe. We test predictions that distinguish this mechanism from both Bayesian learning and adaptive expectations, and find supportive evidence. A calibration of the model offers a satisfactory account of the key patterns in fundamentals, expectations, and returns.

3 citations


Posted Content
TL;DR: In this paper, the authors evaluate Fama's claim that stock prices do not exhibit price bubbles and present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio does not, on average, predict unusually low returns going forward; (2) such sharp price increases predict a substantially heightened probability of a crash; (3) attributes of the price run-up, including volatility, turnover, issuance, and the price path of the runup can all help forecast an eventual crash and future returns; and (4) some of these characteristics can
Abstract: We evaluate Eugene Fama?s claim that stock prices do not exhibit price bubbles. Based on US industry returns 1926-2014 and international sector returns 1985-2014, we present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio does not, on average, predict unusually low returns going forward; (2) such sharp price increases predict a substantially heightened probability of a crash; (3) attributes of the price run-up, including volatility, turnover, issuance, and the price path of the run-up can all help forecast an eventual crash and future returns; and (4) some of these characteristics can help investors earn superior returns by timing the bubble. Results hold similarly in US and international samples.

2 citations


Posted Content
TL;DR: In this paper, the choice set cues a consumer to recall a norm, and surprise relative to the norm shapes his attention and choice, which predicts unstable and inconsistent behavior in new contexts, because these are evaluated relative to past norms.
Abstract: We present a theory in which the choice set cues a consumer to recall a norm, and surprise relative to the norm shapes his attention and choice. We model memory based on Kahana (2012), where past experiences that are more recent or more similar to the cue are recalled and crowd out others. We model surprise relative to the norm using our salience model of attention and choice. The model predicts unstable and inconsistent behavior in new contexts, because these are evaluated relative to past norms. Under some conditions, repeated experience causes norms to adapt, inducing stable – sometimes rational – behavior across different contexts. We test some of the model’s predictions using an expanded data set on rental decisions of movers between US cities first analyzed by Simonsohn and Loewenstein (2006).

1 citations