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Rational bubbles in the US stock market? Further evidence from a nonparametric cointegration test

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  • Tsangyao Chang
  • Chi-Chen Chiu
  • Chien-Chung Nieh

Abstract

In this study, we revisit the issue as to the presence of rational bubbles in the US stock market during the 1871 to 2002 period using both the Johansen cointegration and the Bierens 1997 nonparametric cointegration tests. The results from the conventional Johansen cointegration test fully support the existence of rational bubbles, whereas those from the Bierens nonparametric cointegration test attest to the absence of rational bubbles. On account of the superiority of the nonparametric method to detect cointegration when the error-correction mechanism is nonlinear, we firmly believe that the results from the nonparametric cointegration test are considerably more reliable than those derived from the conventional Johansen approach.

Suggested Citation

  • Tsangyao Chang & Chi-Chen Chiu & Chien-Chung Nieh, 2007. "Rational bubbles in the US stock market? Further evidence from a nonparametric cointegration test," Applied Economics Letters, Taylor & Francis Journals, vol. 14(7), pages 517-521.
  • Handle: RePEc:taf:apeclt:v:14:y:2007:i:7:p:517-521
    DOI: 10.1080/13504850601103221
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    Cited by:

    1. Ye, Yonggang & Chang, Tsangyao & Hung, Ken & Lu, Yang-Cheng, 2011. "Revisiting rational bubbles in the G-7 stock markets using the Fourier unit root test and the nonparametric rank test for cointegration," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 82(2), pages 346-357.
    2. Tsangyao Chang & Wen-Chi Liu, 2008. "Rational Bubbles in the Korea Stock Market? Further Evidence based on Nonlinear and Nonparametric Cointegration Tests," Economics Bulletin, AccessEcon, vol. 3(34), pages 1-12.
    3. repec:ebl:ecbull:v:3:y:2008:i:34:p:1-12 is not listed on IDEAS
    4. repec:eme:jespps:v:43:y:2016:i:4:p:646-660 is not listed on IDEAS
    5. repec:ipg:wpaper:2014-462 is not listed on IDEAS
    6. Li-Hung Wu, 2013. "Rational Bubbles Exist in the G-7 Stock Markets? Threshold Cointegration Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 32-43, December.
    7. Cerqueti, Roy & Costantini, Mauro, 2011. "Testing for rational bubbles in the presence of structural breaks: Evidence from nonstationary panels," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2598-2605, October.
    8. Jung-Suk Yu & M. Kabir Hassan, 2010. "Rational speculative bubbles in MENA stock markets," Studies in Economics and Finance, Emerald Group Publishing, vol. 27(3), pages 247-264, August.

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