Investing: How to recognize a bubble - before it bursts

Asset bubbles, like artistic geniuses, have a reputation for going unrecognized in their lifetimes. That does not deter Ajay Kapur, Citigroup's chief global equity strategist, from trying to identify markets around the world that may be experiencing dangerous, unsustainable expansions.

Kapur claims to be able to flag bubbles one year before their peaks, on average, by using a simple criterion to define when one is in progress: returns that deviate markedly from the long-term trend. That does not seem like a high hurdle to breach, but in a study of three centuries of market action in developed economies, 7he found just 26 examples.

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