The bubble narrative has often been overused especially if it is not backed-up with some numbers. There needs to be some objective way of stating that markets are in a bubble, or more importantly identify the markets that display bubble behavior. This is done through the Financial Crisis Observatory.
This center uses a power law methodology to identify bubbles or extreme up and down moves across a number of asset class and large number of individual markets. The observatory tracks markets through time and provides a probability measure of "bubbleness". The model looks at four states: positive and negative bubbles as well as positive and negative bubbles likely to reverse based on a value score.
There currently is a clear bias to positive bubbles as would be expected given the large amount of liquidity in markets. The asset class focus is on commodities and stock indices. There is a bias given the smaller number of markets followed in these asset classes, but it provides some clear indicators of overcrowded markets and herding at this time versus past measurement.
The FCO report is published once a month. It can provide focus on markets that seem especially extended although we have seen research that bubbles last longer than expected.
Some of our earlier posts on bubbles:
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