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Stock market prices and Dividends in the US: Bubbles or Long-run equilibria relationships?

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  • Dettoni, Robinson
  • Gil-Alana, Luis A.
  • Yaya, OlaOluwa S.

Abstract

This paper presents a novel approach to identifying potential bubbles in the US stock market by employing alternative time series methods based on long memory, including fractional integration and cointegration, as well as duration dependence non-parametric models. To test for duration dependence, the paper employs a unique non-parametric hazard function estimation method, using monotonic P-splines, which enables the estimation of a coherent and sophisticated Bayesian confidence interval for the function. By analyzing historical data of real US stock index from January 1871 to November 2022, the results reveal strong evidence of bubbles in the US stock market. It is worth noting that this is the first time a fractional integration approach and a novel non-parametric hazard function have been utilized to test for rational speculative bubbles in the US stock market, making this paper a significant contribution to the field.

Suggested Citation

  • Dettoni, Robinson & Gil-Alana, Luis A. & Yaya, OlaOluwa S., 2024. "Stock market prices and Dividends in the US: Bubbles or Long-run equilibria relationships?," International Review of Financial Analysis, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:finana:v:94:y:2024:i:c:s1057521924002515
    DOI: 10.1016/j.irfa.2024.103319
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    More about this item

    Keywords

    Stock market prices; Dividends; Fractional cointegration; Duration dependence models;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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