Abslract. The article considers the possibility that asset prices might deviate from intrinsic values based on market fundamentals. Three broad categories of theory are surveyed: (a) growing bubbles (b) fads and (c) information bubbles. 'Sunspot' theories are also discussed. The paper covers both theory and evidence, and directions for future research are discussed.

Consider the postage stamp. As title to a future good (or, in this case, service) with monetary value, this humble object is essentially the same as a security. Its value, 37 cents, can be identiÞed with the present value of the service (delivery of a letter) to which its owner is entitled.

Abstract: The paper examines time series properties and efficiency of a securities market where disparately informed traders hold rational expectations and extract signals from the endogenous market price. Two equilibria are calculated, using a method of Sargent to handle the problem of infinite regress. When rational speculation is the sole source of potential trade, the market price reflects all private information, and zero trade occurs. When net supply is perturbed by unobserved noise, the market exhibits a broad range of characteristics cited in empirical literature, including excess volatility, mean reversion, dividend yield effects, trading volume and divergence of opinion. I am indebted to Thomas J. Sargent for helpful discussions. Are securities prices too volatile? This question is central to evaluating how efficiently resources are allocated in a competitive market. A large body of literature suggests that securities markets will generate prices which reflect all available information, even if some traders are better informed than others. Recent empirical studies place this market efficiency