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Speculative bubbles in the S&P 500: Was the tech bubble confined to the tech sector?

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  • Anderson, Keith
  • Brooks, Chris
  • Katsaris, Apostolos

Abstract

This study tests for the presence of periodically, partially collapsing speculative bubbles in the sector indices of the S&P 500 using a regime-switching approach. We also employ an augmented model that includes trading volume as a technical indicator to improve the ability of the model to time bubble collapses and to better capture the temporal variations in returns. We find that well over half of the S&P 500 index by market capitalization and seven of its ten sector component indices exhibited at least some bubble-like behavior over our sample period. Thus the speculative bubble that grew in the 1990s and subsequently collapsed was surprisingly pervasive in the US equity market and it affected numerous sectors including financials and general industrials, rather than being confined to information technology, telecommunications and the media. In addition, we develop a joint model for cross-sectional contagion of bubbles across the sectors and we examine whether there is evidence for bubble spillovers.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 17 (2010)
Issue (Month): 3 (June)
Pages: 345-361

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Handle: RePEc:eee:empfin:v:17:y:2010:i:3:p:345-361

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Web page: http://www.elsevier.com/locate/jempfin

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Keywords: Stock market bubbles Fundamental values Dividends Regime switching Speculative bubble tests;

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Citations

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Cited by:
  1. Murillo Campello & John Graham, 2007. "Do Stock Prices Influence Corporate Decisions? Evidence from the Technology Bubble," NBER Working Papers 13640, National Bureau of Economic Research, Inc.
  2. Asako, Kazumi & Liu, Zhentao, 2013. "A statistical model of speculative bubbles, with applications to the stock markets of the United States, Japan, and China," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2639-2651.
  3. Morris, John J. & Alam, Pervaiz, 2012. "Value relevance and the dot-com bubble of the 1990s," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 243-255.

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