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Testing for stock market bubbles using nonlinear models and fractional integration

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Author Info

  • J. Cunado
  • L. A. Gil-Alana
  • F. Perez de Gracia

Abstract

In this article we test for bubbles in the S&P 500 stock market index using monthly data over the period 1871m1-2004m6. We use fractional integration techniques, allowing for structural breaks and a nonlinear adjustment process of prices to dividends. We find a significant structural break around 1932, a period in which the stock market began rising again after the market crash of 1929. Furthermore, we do not find evidence of asymmetric adjustment of prices to dividends when using both momentum-threshold autoregressive and threshold autoregressive models. Finally, we cannot reject the hypothesis of orders of integration equal to or higher than one and thus, we find support for the existence of bubbles in the S&P 500 stock market index.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09603100600970081
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Bibliographic Info

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

Volume (Year): 17 (2007)
Issue (Month): 16 ()
Pages: 1313-1321

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Handle: RePEc:taf:apfiec:v:17:y:2007:i:16:p:1313-1321

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Cited by:
  1. repec:ebl:ecbull:v:30:y:2010:i:1:p:115-129 is not listed on IDEAS
  2. Marcel Aloy & Mohamed Boutahar & Karine Gente & Anne Peguin-Feissolle, 2011. "Purchasing power parity and the long memory properties of real exchange rates: does one size fit all?," Working Papers halshs-00559170, HAL.
  3. Marcel Aloy & Mohamed Boutahar & Karine Gente & Anne Peguin-Feissolle, 2010. "Fractional integration and cointegration in stock prices and exchange rates," Working Papers halshs-00536140, HAL.
  4. Lyócsa, Štefan & Výrost, Tomáš & Baumöhl, Eduard, 2011. "Unit-root and stationarity testing with empirical application on industrial production of CEE-4 countries," MPRA Paper 29648, University Library of Munich, Germany.

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