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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)

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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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Publisher 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
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Handle: RePEc:uwa:wpaper:01-14

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
E0 - Macroeconomics and Monetary Economics - - General
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
G1 - Financial Economics - - General Financial Markets
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

References listed on IDEAS
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  1. Patricia Fraser & Martin Hoesli & Lynn McAlevey, 2008. "House Prices and Bubbles in New Zealand," The Journal of Real Estate Finance and Economics, Springer, vol. 37(1), pages 71-91, July. [Downloadable!] (restricted)
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