Bubbles in the Finnish and US equities markets
AbstractTests for unit roots in log dividend yields, which are consistent with ‘rational bubbles’ in stock prices, are conducted for the S&P500 and Finnish stock market indexes. In addition to the traditional unit root tests, we split the data into 10-year segments and use frequency domain analysis to test for the presence of unit roots in the dividend yield data. The results strongly suggest the existence of bubbles in both the US and Finnish markets. Finally we develop a novel dividend yield-based method to track periods when stock prices divert their fundamental levels. This indicator produces promising results, as it seems to have some forecasting ability concerning booms and busts in the stock markets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of Finland in its series Scientific Monographs with number E:35/2006.
Length: 128 pages
Date of creation: 29 Aug 2006
Date of revision:
equity price; bubble; rolling ADF;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Taipalus , Katja, 2012. "Signaling asset price bubbles with time-series methods," Research Discussion Papers 7/2012, Bank of Finland.
- Taipalus, Katja, 2012. "Detecting asset price bubbles with time-series methods," Scientific Monographs E:47/2012, Bank of Finland.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Minna Nyman) or (Päivi Määttä).
If references are entirely missing, you can add them using this form.