Professor Dan Tortorice won the Outstanding Paper in Investments award at the Eastern Finance Association Conference. The conference was held from April 6th to 9th in Baltimore MD. Prof. Tortorice has this to say about his paper.

” My paper,”Equity Return Predictability, Time Varying Volatility and Learning About the Permanence of Shocks” attempts to understand large fluctuations in stock prices commonly called bubbles. In my model, firms have temporary periods of high profitability. However, investors do not know these periods are temporary and must make guesses about future profitability based on today’s profitability. The investors often make mistakes thinking these temporary periods of high profitability are actually permanent. These mistaken beliefs lead to sharp increase in asset prices followed by a crash when investors realize they were mistaken.

The models helps shed light on several puzzles in finance. For example, why are equity prices so volatile? Why are large increases in the price-to-earnings ratio often followed by lower returns in the future? Why does the stock market go through periods of particularly high volatility?”

To find out more about Prof. Tortorice and his research check out his web page at:


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