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Is There Irrational Exuberance?

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  • Chulsoo Kim

    (Department of Economics, Sookmyung Women¡¯s University)

Abstract

This paper presents a framework in which we can examine whether stock prices are overvalued or undervalued. This paper estimates equilibrium stock prices based on the Lucas (1978) tree model using the Hansen and Sargent (1980) cross-equation restriction approach and the VAR approach. By comparing equilibrium stock prices with actual stock prices, we can judge whether stock prices are overvalued or undervalued. This paper finds that Korean stock prices for the period 1983:1 to 2002:3 were valued substantially more than their equilibrium prices while US stock prices for the period 1871:1 to 2001:9 were on average valued substantially less than their equilibrium prices.

Suggested Citation

  • Chulsoo Kim, 2004. "Is There Irrational Exuberance?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 29(2), pages 65-80, December.
    • Handle: RePEc:jed:journl:v:29:y:2004:i:2:p:65-80
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    References listed on IDEAS

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    More about this item

    Keywords

    Stock Price; Irrational Exuberance;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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