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Assessing Pre-Crisis Fundamentals In Selected Asian Stock Markets

Author

Listed:
  • EE LENG LAU

    (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Nanyang Avenue, Singapore 639798, Singapore)

  • G. K. RANDOLPH TAN

    (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Nanyang Avenue, Singapore 639798, Singapore)

  • SHAHIDUR RAHMAN

    (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Nanyang Avenue, Singapore 639798, Singapore)

Abstract

In the folklore of emerging markets, there is a popular belief that bubbles are inevitable. In this paper, our objective is to estimate a state-space model for rational bubbles in selected Asian economies with the aid of the Kalman Filter. For each economy, we derive a possible picture of the bubble formation process that is implied by the state-space formulation. The estimation is based on the rational valuation formula for stock prices. Our results provide a possible way of defining the presence of rational bubbles in the stock markets of Taiwan, Singapore, Korea, and Malaysia.

Suggested Citation

  • Ee Leng Lau & G. K. Randolph Tan & Shahidur Rahman, 2005. "Assessing Pre-Crisis Fundamentals In Selected Asian Stock Markets," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 50(02), pages 175-196.
    • Handle: RePEc:wsi:serxxx:v:50:y:2005:i:02:n:s0217590805001962
    DOI: 10.1142/S0217590805001962
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    References listed on IDEAS

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    1. Harvey,Andrew C., 1991. "Forecasting, Structural Time Series Models and the Kalman Filter," Cambridge Books, Cambridge University Press, number 9780521405737.
    2. Behzad T. Diba & Herschel I. Grossman, 1984. "Rational Bubbles in the Price of Gold," NBER Working Papers 1300, National Bureau of Economic Research, Inc.
    3. Mathias Binswanger, 1999. "Stock Markets, Speculative Bubbles and Economic Growth," Books, Edward Elgar Publishing, number 1749.
    4. Harvey, Andrew & Snyder, Ralph D., 1990. "Structural time series models in inventory control," International Journal of Forecasting, Elsevier, vol. 6(2), pages 187-198, July.
    5. Franses, Philip Hans, 1996. "Periodicity and Stochastic Trends in Economic Time Series," OUP Catalogue, Oxford University Press, number 9780198774549.
    6. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Tsaubin Chen & Chiang Ku Fan, 2019. "Non-performing Loans and Housing Prices in Taiwan," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(6), pages 1-4.

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