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How Data Can Help Predict Stock Price Bubbles

Monday, April 13, 2026

By Charly Haley
 

Trying to predict an industry crash? Forget the crystal ball, and take a look at the accounting data. 

A recent study by Associate Professor Salman Arif is the first to show that accounting data can help predict stock price bubbles, which are situations when an industry booms and then crashes.

Though many economists have linked stock price bubbles with corporate overinvestment, no one had ever quantified how to predict a bubble. Some economists, including Nobel Laureate Eugene Fama, have even suggested that these bubbles cannot be identified. In response, Arif namedrops Fama in the title of his paper: “Does Accounting Information Identify Bubbles for Fama? Evidence from Accruals.”

Arif’s research, published in the Journal of Accounting and Economics, examined 30 years of global accounting data to show that stock price bubbles can indeed be predicted.

“The overinvestment story seems to be borne out in the data, where a rapid expansion in investment activity foretells the crash of the industry,” says Arif, who holds the Curtis L. Carlson Professorship in the school’s Accounting Department.

His study is useful for much more than settling a disagreement between economists. Arif says the research shows company leaders that they should consider the potential for a crash when they expand in a booming industry.

Key Takeaways

  • Boom, Then Bust: Associate Professor Salman Arif’s research shows accounting data can help predict stock price bubbles.
  • Warning Signs: Global data reveals that rapid, massive spending spikes often signal an imminent industry-wide collapse.
  • Advice for CEOs: Arif urges leaders to prioritize long-term profits over investor hype when funding new technologies.
Salman Arif headshot

The overinvestment story seems to be borne out in the data, where a rapid expansion in investment activity foretells the crash of the industry.

Associate Professor Salman Arif

“You may ask, why might a CEO engage in this overinvestment? There could be hundreds of reasons. If their investors are exuberant about something, then a CEO has incentives to do what investors want, perhaps without fully considering the risk,” Arif says. “My research is basically saying, you have to be very careful and cautious if you’re about to embark on a spending spree.”

This research is particularly relevant in the current moment as many companies accelerate their investments in rapidly developing technology, such as costly data centers, Arif says.

“We hope that these things are good investments, but there’s risk,” he says. “Ultimately, what needs to be checked is the economic profitability expectations of this investment. And if you don’t know what those are, then you should be cautious.”

Spring 2026 alumni magazine cover

This article appeared in the Spring 2026 alumni magazine

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