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Testing for bubbles in stock markets with irregular dividend distribution

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  • Caspi, Itamar
  • Graham, Meital

Abstract

Recursive right-tailed unit root tests have recently become a popular tool to test the existence of stock price bubbles. These tests require continuous data on dividend distribution that is not always available, in particular when it comes to sectoral indexes or individual stocks. In this paper we show that it is possible to circumvent this problem by applying the test to an equity bubble using the book-to-market ratio. We illustrate our framework by testing for a bubble in the Israeli stock market, where data on continuous dividend distribution are uncommon.

Suggested Citation

  • Caspi, Itamar & Graham, Meital, 2018. "Testing for bubbles in stock markets with irregular dividend distribution," Finance Research Letters, Elsevier, vol. 26(C), pages 89-94.
    • Handle: RePEc:eee:finlet:v:26:y:2018:i:c:p:89-94
    DOI: 10.1016/j.frl.2017.12.015
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    7. Peter C. B. Phillips & Shuping Shi & Jun Yu, 2015. "Testing For Multiple Bubbles: Historical Episodes Of Exuberance And Collapse In The S&P 500," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 1043-1078, November.
    8. Itamar Caspi, 2015. "Testing for a Housing Bubble at the National and Regional Level: The Case of Israel," Bank of Israel Working Papers 2015.05, Bank of Israel.
    9. Peter C. B. Phillips & Shuping Shi, 2019. "Detecting Financial Collapse and Ballooning Sovereign Risk," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(6), pages 1336-1361, December.
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    Cited by:

    1. Yao, Can-Zhong & Li, Hong-Yu, 2021. "A study on the bursting point of Bitcoin based on the BSADF and LPPLS methods," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    2. Emily J. Whitehouse & David I. Harvey & Stephen J. Leybourne, 2023. "Real‐Time Monitoring of Bubbles and Crashes," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(3), pages 482-513, June.
    3. Yuchao Fan, 2022. "Dissecting the dot-com bubble in the 1990s NASDAQ," Papers 2206.14130, arXiv.org, revised Jul 2022.

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    More about this item

    Keywords

    Bubbles; Stock markets; Book-to-market; Explosive root; GSADF Test; Israel;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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