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Rational speculative bubbles in the Asian stock markets: Tests on deterministic explosive bubbles and stochastic explosive root bubbles

Rational speculative bubbles in the Asian stock markets: Tests on deterministic explosive bubbles and stochastic explosive root bubbles

Chen, Yen-Hsiao and Quan, Lianfeng (2013) Rational speculative bubbles in the Asian stock markets: Tests on deterministic explosive bubbles and stochastic explosive root bubbles. Journal of Asset Management, 14 (3). pp. 195-208. ISSN 1470-8272 (Print), 1479-179X (Online) (doi:10.1057/jam.2013.13)

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Abstract

The standard theory of asset pricing, in which a long-run relationship should exist between stock prices and dividends if there are no deterministic explosive bubbles, assumes the constancy of expected returns. However, the investor’s expected returns are more likely to be time varying, which have led to the modification for the tests of rational bubble. One modification is that the tests should be applied to the log levels of stock price and dividend for allowing the detection of the stochastic explosive root bubble, which incorporates the possibility of time-varying expected returns. Accordingly, we test the existence or otherwise of both types of rational bubbles in the Asian stock markets by applying the unit root tests and the cointegration analyses. The empirical results suggest that the rational bubbles exist in the stock markets of Japan, Singapore, Korea, Taiwan, Thailand, Malaysia, Indonesia and Philippine, whereas Hong Kong is found to have no rational bubbles.

Item Type: Article
Uncontrolled Keywords: Asian Crisis, Japanese asset price bubble, Stationarity, Present value model, Price-dividend ratio
Faculty / Department / Research Group: Faculty of Business > Department of Accounting & Finance
Last Modified: 14 Oct 2016 17:18
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
URI: http://gala.gre.ac.uk/id/eprint/14752

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