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Multiple Changes in Persistence vs. Explosive Behaviour: The Dotcom Bubble

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  • Otavio Ribeiro de Medeiros and Vitor Leone

Abstract

Based on a method developed by Leybourne, Kim and Taylor (2007) for detecting multiple changes in persistence, we test for changes in persistence in the dividend-price ratio of the NASDAQ stocks. The results confirm the existence of the so-called Dotcom bubble around the last turn of the century and its start and end dates. Furthermore, we compare the results with a test for detecting and date-stamping explosive unit-root behaviour developed by Phillips, Wu and Yu’s (2011) also applied to the NASDAQ price and dividend indices. We find that Leybourne, Kim and Taylor’s test is capable of detecting the Dotcom bubble as much as Phillips, Wu and Yu’s test is, but there are significant differences between the bubble start and end dates suggested by both methods and between these and the dates reported by the financial media. We also find an unexpected negative bubble extending from the beginning of the 1970s to the beginning of the 1990s where the NASDAQ stock prices were below their fundamental values as indicated by their dividend yields, which has not been reported in the literature so far.

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Bibliographic Info

Paper provided by Nottingham Trent University, Nottingham Business School, Economics Division in its series Working Papers with number 2012/02.

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Date of creation: Apr 2012
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Handle: RePEc:nbs:wpaper:2012/02

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Web page: http://www.ntu.ac.uk/nbs

Related research

Keywords: Multiple changes in persistence; Explosive behaviour; Unit roots; Dotcom Bubble; NASDAQ.;

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Cited by:
  1. Simeon Coleman Author name: Vitor Leone, 2012. "Time-series characteristics of UK commercial property returns: Testing for multiple changes in persistence," Working Papers 2012/03, Nottingham Trent University, Nottingham Business School, Economics Division.
  2. Simeon Coleman & Kavita Sirichand, 2014. "Investigating Multiple Changes in Persistence in International Yields," Discussion Paper Series 2014_04, Department of Economics, Loughborough University, revised Jul 2014.

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