Executive Summary


  • A long period of elevated asset valuation raises some fundamental questions: How can assets sustain prices way above their fundamental value for extended periods of time? Why are investors willing to bid up expensive assets?
  • Our research shows that for an expensive asset to sustain its valuation, the probability of further price increases must be high. Currency and equity option markets provide evidence that supports this finding.
  • We show that asset managers might have incentives to go long, instead of short, expensive assets if their prices are more likely to increase; and the presence of return-chasing investors could drive asset prices well above their fundamental value before the bubble bursts.
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The Author

Jamil Baz

Head of Client Solutions and Analytics

Josh Davis

Portfolio Manager, Head of Client Analytics

Cristian Fuenzalida

Jerry Tsai

Quantitative Research Analyst

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