Testing for rational bubbles in a co-explosive vector autoregression
AbstractWe derive the parameter restrictions that a standard equity market model implies for a bivariate vector autoregression for stock prices and dividends, and we show how to test these restrictions using likelihood ratio tests.� The restrictions, which imply that stock returns are unpredictable, are derived both for a model without bubbles and for a model with a rational bubble.� In both cases we show how the restrictions can be tested through standard chi-squared inference.� The analysis for the no-bubble case is done within the traditional Johansen model for I(1) variables, while the bubble model is analysed using a co-explosive framework.� The methodology is illustrated using US stock prices and dividends for the period 1872-2000.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2010-W06.
Date of creation: 01 Jun 2010
Date of revision:
Rational bubbles; explosiveness and co-explosiveness; cointegration; vector autoregression; likelihood ratio tests;
Other versions of this item:
- Tom Engsted & Bent Nielsen, 2012. "Testing for rational bubbles in a coexplosive vector autoregression," Econometrics Journal, Royal Economic Society, vol. 15(2), pages 226-254, 06.
- Tom Engsted & Bent Nielsen, 2010. "Testing for rational bubbles in a co-explosive vector autoregression," CREATES Research Papers 2010-25, School of Economics and Management, University of Aarhus.
- Tom Engsted & Bent Nielsen, 2010. "Testing for rational bubbles in a co-explosive vector autoregression," Economics Papers 2010-W06, Economics Group, Nuffield College, University of Oxford.
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bent Nielsen & Anders Rahbek, 2003. "Similarity Issues in Cointegration Models," Economics Series Working Papers 1998-W13, University of Oxford, Department of Economics.
- Xiaohu Wang & Jun Yu, 2013. "Limit Theory for an Explosive Autoregressive Process," Working Papers 08-2013, Singapore Management University, School of Economics.
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