A Direct Test of Rational Bubbles
AbstractThe recent introduction of new derivatives with future dividend payments as underlyings allows to construct a direct test of rational bubbles. We suggest a simple, new method to calculate the fundamental value of stock indices. Using this approach, bubbles become observable. We calculate the time series of the bubble component of the Euro-Stoxx 50 index and investigate its properties. Using a formal hypothesis test we find that the behavior of the bubble is compatible with rationality.
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Bibliographic InfoPaper provided by Center for Quantitative Economics (CQE), University of Muenster in its series CQE Working Papers with number 1310.
Length: 27 pages
Date of creation: Mar 2010
Date of revision:
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Postal: Am Stadtgraben 9, 48143 Münster, Germany
Web page: http://www1.wiwi.uni-muenster.de/cqe/
More information through EDIRC
speculative rational bubbles; martingale tests; fundamental value; dividend expectation;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-24 (All new papers)
- NEP-BAN-2010-04-24 (Banking)
- NEP-ECM-2010-04-24 (Econometrics)
- NEP-FMK-2010-04-24 (Financial Markets)
- NEP-MKT-2010-04-24 (Marketing)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Are bubbles observable?
by Economic Logician in Economic Logic on 2010-06-01 15:01:00
- Weekly Wisdom Roundup # 81 â?? The Smartest Linkfest On The Web
by Miguel in Simoleon Sense on 2010-06-06 19:53:02
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