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Testing for bubbles: an application of tests for change in persistence

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Author Info
Robert Sollis
Abstract

This study investigates changes in the persistence of the S&P Composite dividend-price ratio. Recently developed tests are employed that allow for breaks between periods in which the data are integrated of order zero, I (0), and integrated of order one, I (1). One of the tests finds a break from I (0) to I (1) in the mid-1970s and two of the tests find a break from I (0) to I (1) in the early, to mid-1950s. The results are discussed in light of the rational bubble hypothesis.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Financial Economics.

Volume (Year): 16 (2006)
Issue (Month): 6 (March)
Pages: 491-498
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Handle: RePEc:taf:apfiec:v:16:y:2006:i:6:p:491-498

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Perron, P. & Ng, S., 1994. "Useful Modifications to Some Unit Root Tests with Dependent Errors and Their Local Asymptotic Properties," Cahiers de recherche 9427, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
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  2. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000. [Downloadable!]
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  3. John Y. Campbell & Robert J. Shiller, 2001. "Valuation Ratios and the Long-Run Stock Market Outlook: An Update," NBER Working Papers 8221, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation, Yale University, revised Sep 1987. [Downloadable!]
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  5. L. Sarno & M. P. Taylor, 2003. "An empirical investigation of asset price bubbles in Latin American emerging financial markets," Applied Financial Economics, Taylor and Francis Journals, vol. 13(9), pages 635-643, September. [Downloadable!] (restricted)
  6. Binswanger, Mathias, 2000. "Stock Returns and Real Activity: Is There Still a Connection?," Applied Financial Economics, Taylor and Francis Journals, vol. 10(4), pages 379-87, August. [Downloadable!] (restricted)
  7. Nathan S. Balke & Mark E. Wohar, 2001. "Explaining stock price movements: is there a case for fundamentals?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q III, pages 22-34. [Downloadable!]
  8. Donald W.K. Andrews & Werner Ploberger, 1992. "Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative," Cowles Foundation Discussion Papers 1015, Cowles Foundation, Yale University. [Downloadable!]
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  9. Busetti, Fabio & Taylor, A. M. Robert, 2004. "Tests of stationarity against a change in persistence," Journal of Econometrics, Elsevier, vol. 123(1), pages 33-66, November. [Downloadable!] (restricted)
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  1. Kruse, Robinson, 2008. "Rational bubbles and fractional integration," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-394, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
  2. Stephen Leybourne & Tae-Hwan Kim & A.M. Robert Taylor, 2007. "Detecting Multiple Changes in Persistence," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 11(3), pages 1370-1370. [Downloadable!] (restricted)
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