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Intrinsic bubbles revisited: evidence from nonlinear cointegration and forecasting

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  • Angelos Kanas

    (University of Crete and FORTH, Greece)

  • Yue Ma

    (Lingnan University, Hong Kong)

Abstract

This paper offers strong further empirical evidence to support the intrinsic bubble model of stock prices, developed by Froot and Obstfeld (American Economic Review, 1991), in two ways. First, our results suggest that there is a long-run nonlinear relationship between stock prices and dividends for the US stock market during the period 1871-1996. Second, we find that the out-of-sample forecasting performance of the intrinsic bubbles model is significantly better than the performance of two alternatives, namely the random walk and the rational bubbles model. Copyright © 2004 John Wiley & Sons, Ltd.

Suggested Citation

  • Angelos Kanas & Yue Ma, 2004. "Intrinsic bubbles revisited: evidence from nonlinear cointegration and forecasting," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(4), pages 237-250.
    • Handle: RePEc:jof:jforec:v:23:y:2004:i:4:p:237-250
    DOI: 10.1002/for.909
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    References listed on IDEAS

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    Cited by:

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    2. Ogonna Nneji & Chris Brooks & Charles Ward, 2011. "Intrinsic and Rational Speculative Bubbles in the U.S. Housing Market 1960-2009," ICMA Centre Discussion Papers in Finance icma-dp2011-01, Henley Business School, University of Reading.
    3. Zhijun Zhao & Yue Ma & Yuhui Liu, 2005. "Equity Valuation in Mainland China and Hong Kong: The Chinese A-H Share Premium," Working Papers 142005, Hong Kong Institute for Monetary Research.
    4. Chen, An-Sing & Cheng, Lee-Young & Cheng, Kuang-Fu, 2009. "Intrinsic bubbles and Granger causality in the S&P 500: Evidence from long-term data," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2275-2281, December.
    5. Nunes, Maurício Simiano & da Silva, Sérgio, 2009. "Bolhas Racionais no Índice Bovespa," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 63(2), June.

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