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A test for rational bubbles in stock prices

Author

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  • Yuichi Fukuta

    (Graduate School of Business Administration, Kobe University, 2-1 Rokkodai, Nada, Kobe, Hyogo 657-8501, Japan)

Abstract

This paper presents two necessary conditions for the absence of rational bubbles on the assumption that the discount rate is stationary. One condition is that real stock prices and real dividends are cointegrated with the time-varying cointegrating vector. The other is that the order of integration of real stock prices is equal to that of real dividends. The first condition is different from that proposed on the assumption of a constant discount rate. In contrast, the second condition is the same as that presented on this assumption. Examining the second condition using Japanese data, we find that Japanese stock prices and dividends satisfy the necessary condition.

Suggested Citation

  • Yuichi Fukuta, 2002. "A test for rational bubbles in stock prices," Empirical Economics, Springer, vol. 27(4), pages 587-600.
    • Handle: RePEc:spr:empeco:v:27:y:2002:i:4:p:587-600
    Note: received: May 2000/Final version accepted: April 2001
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    Citations

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    Cited by:

    1. Vasco Gabriel & Luis Martins, 2011. "Cointegration tests under multiple regime shifts: An application to the stock price–dividend relationship," Empirical Economics, Springer, vol. 41(3), pages 639-662, December.
    2. Refet S. Gürkaynak, 2008. "Econometric Tests Of Asset Price Bubbles: Taking Stock," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 166-186, February.
    3. Nandini Srivastava & Stephen Satchell, 2012. "Are There Bubbles in the Art Market? The Detection of Bubbles when Fair Value is Unobservable," Birkbeck Working Papers in Economics and Finance 1209, Birkbeck, Department of Economics, Mathematics & Statistics.
    4. Qing He & Zongxin Qian & Zhe Fei & Terence Tai-Leung Chong, 2019. "Do speculative bubbles migrate in the Chinese stock market?," Empirical Economics, Springer, vol. 56(2), pages 735-754, February.
    5. Hiroki Arato & Katsunori Yamada, 2012. "Japan's Intangible Capital and Valuation of Corporations in a Neoclassical Framework," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(4), pages 459-478, October.
    6. Tadahiro Nakajima & Shigeyuki Hamori, 2012. "Testing for Rational Bubbles in the Commodity Market," Accounting and Finance Research, Sciedu Press, vol. 1(2), pages 101-101, November.
    7. Vinod Cheriyan & Anton J. Kleywegt, 2016. "A dynamical systems model of price bubbles and cycles," Quantitative Finance, Taylor & Francis Journals, vol. 16(2), pages 309-336, February.

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