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Rational bubbles and fractional integration

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  • Kruse, Robinson

Abstract

In this article we provide evidence for a rational bubble in S\&P 500 stock prices by applying a test for changing persistence under fractional integration proposed by Sibbertsen and Kruse (2007). We find strong evidence for stationary long memory before the estimated change point in 1955 and a unit root afterwards. These results bring two empirical findings in line: on one hand they confirm the previous result of fractional integration and on the other hand they support the hypothesis of a rational bubble.

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File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-394.pdf
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Bibliographic Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-394.

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Length: 7 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:han:dpaper:dp-394

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Related research

Keywords: fractional integration; bubbles; changing persistence;

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  1. Philipp Sibbertsen & Robinson Kruse, 2009. "Testing for a break in persistence under long-range dependencies," Journal of Time Series Analysis, Wiley Blackwell, vol. 30(3), pages 263-285, 05.
  2. Robert Sollis, 2006. "Testing for bubbles: an application of tests for change in persistence," Applied Financial Economics, Taylor & Francis Journals, vol. 16(6), pages 491-498.
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