The study of bubbles has come into fashion lately, and of course identifying them is high on the priority list. The thing is that they are very difficult to find, by definition. A bubble appears when the value of an asset deviates significantly from its fundamentals. But the latter are not directly observable, as they are mostly formulated in terms of expectations, and most of the time they are actually measured using the asset price. You see how this is circular and makes the exercise impossible.
Friedrich Geiecke and Mark Trede claim to have solved this. The use the prices of futures to determine dividend expectations, specifically future contracts on the Dow Jones Euro Stoxx 50 DVP Index, which is a traded index that measures all cumulated dividends paid on stock listed in the Dow Jones Euro Stoxx 50 Price Index. From this, Geiecke and Trede back out the fundamentals, then compare them to the last Price Index and find indeed that there are rational bubbles.
This is an interesting approach. I am worried though that the market for those futures may not be that liquid so as to tease out market fundamentals. We will see with time whether this approach holds water
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