@article{Bubbles?:781,
      recid = {781},
      author = {Schaller, Huntley and van Norden, Simon},
      title = {Fads or Bubbles?},
      publisher = {Bank of Canada},
      address = {1997},
      pages = {1 online resource (56 pages)},
      abstract = {This paper tests between fads and bubbles using a new  empirical strategy (based on switching-regression  econometrics) for distinguishing between competing  asset-pricing models. By extending the Blanchard and Watson  (1982) model, we show how stochastic bubbles can lead to  regime-switching in stock market returns. By incorporating  state-dependent heteroscedasticity into the Cutler,  Poterba, and Summers (1991) fads model, we show that it can  also lead to regime-switching. Two main features of the  bubbles model distinguish it from the fads model. First,  the bubbles model implies that returns are drawn from two  distinct regimes. Second, the bubbles model implies that  deviations from fundamental price will help predict regime  switches. Using U.S. data for 1926-89, we find evidence  that is consistent with the fads model even when we allow  for variation in expected dividend growth rates and  expected discount rates. However, the restrictions that the  fads model implies for a more general switching model are  rejected. The rejections point in the direction of the  bubbles model, although not all the implications of the  bubbles model are supported by the data.},
      url = {http://www.oar-rao.bank-banque-canada.ca/record/781},
      doi = {https://doi.org/10.34989/swp-1997-2},
}