November 7, 2022
Working Papers
Complimentary CONTENT
Measuring Market Froth
By: Rajeev Bhargava, Michael Guidi, Robin Greenwood, Zachary Crowell
November 7, 2022
By: Rajeev Bhargava, Michael Guidi, Robin Greenwood, Zachary Crowell
We define equity markets and sectors to be “frothy” when the probability of a future drawdown in prices is high. Using simple panel regressions, we analyze data across 80 countries and 400 country-sectors to identify and evaluate which factors--including issuance, volatility, the price path, and flow-based factors-- are most predictive of future sector-level drawdowns. We translate our predictive model into indicators for sector- and market-level froth.
Author Bios
Rajeev Bhargava
Michael Guidi
Michael Guidi is Managing Director and Head of Alternative Data Research at State Street Markets
Robin Greenwood
Robin Greenwood is a professor at Harvard Business School and a partner of State Street Associates
Zachary Crowell
Zachary Crowell is Assistant Vice President and Quantitative Researcher at State Street Markets
1. Peter L. Bernstein Award for Best Article in an Institutional Investor Journal in 2013; Bernstein-Fabozzi/Jacobs-Levy Award for Outstanding Article in the Journal of Portfolio Management in 2006, 2009, 2011, 2013 (2), 2014, 2015, 2016, 2021; Graham & Dodd Scroll Award for article in the Financial Analysts Journal in 2002 and 2010. Roger F. Murray First Prize for Research Presented at the Q Group Conference in 2012, 2021, 2023. Harry M. Markowitz Award for Best Paper in the Journal of Investment Management in 2022, 2023. Doriot Award for Best Private Equity Research Paper in 2022.