Inferring financial bubbles from option data

Financial bubbles arise when the underlying asset's market price deviates from its fundamental value. Unlike other bubble tests that use time series data and assume a reduced-form process, we infer existence of nonparametrically using option data. Under no-arbitrage acknowledging constraints, can partially identify asset cross section European prices. In empirical analysis, obtain interval estimates embedded in S&P 500 Index. The estimated index are then used to construct profitable momentum trading strategies consistently outperform buy-and-hold strategy.