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How big is the speculative component in Australian share prices?

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  • Black, Angela
  • Fraser, Patricia
  • Groenewold, Nicolaas

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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Suggested Citation

  • Black, Angela & Fraser, Patricia & Groenewold, Nicolaas, 2003. "How big is the speculative component in Australian share prices?," Journal of Economics and Business, Elsevier, vol. 55(2), pages 177-195.
  • Handle: RePEc:eee:jebusi:v:55:y:2003:i:2:p:177-195
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    Cited by:

    1. 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.
    2. repec:bla:acctfi:v:56:y:2016:i:4:p:1017-1040 is not listed on IDEAS
    3. 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.

    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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; Trading Volume; Bond Interest Rates

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