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How Big is the Speculative Component in Australian Share Prices?

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Author Info

  • Angela Black

    ()
    (Department of Accountancy and Finance, The University of Aberdeen)

  • Patricia Fraser

    ()
    (Department of Accountancy and Finance, The University of Aberdeen)

  • Nicolaas Groenewold

    ()
    (Department of Economics, The University of Western Australia)

Abstract

Using 20 years of Australian quarterly data, this paper decomposes Australian share prices into their fundamental and speculative components. To do this we derive the fundamental share-price-output ratio and, hence, the fundamental share price from a resticted vector-autoregressive model relating the aggregate real share-price index to real output. Our estimates use different assumptions regarding shareholders required real rate of return. Our results imply that a significant speculative component exists in share prices (around 10% in mid-2000) and that share-price over/underevaluation has a life-span of around 4 years.

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File URL: http://ecompapers.biz.uwa.edu.au/paper/PDF%20of%20Discussion%20Papers/2001/01-14.pdf
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Bibliographic Info

Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 01-14.

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Length: 37 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:uwa:wpaper:01-14

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Cited by:
  1. Patricia Fraser & Martin Hoesli & Lynn Mc Alevey, . "House Prices and Bubbles in New Zealand," Swiss Finance Institute Research Paper Series 06-20, Swiss Finance Institute.
  2. Angela Black & Patricia Fraser & Martin Hoesli, 2005. "House Prices, Fundamentals and Inflation," FAME Research Paper Series rp129, International Center for Financial Asset Management and Engineering.

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