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Testing for bubbles: an application of tests for change in persistence

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  • Robert Sollis

Abstract

This study investigates changes in the persistence of the S&P Composite dividend-price ratio. Recently developed tests are employed that allow for breaks between periods in which the data are integrated of order zero, I(0), and integrated of order one, I(1). One of the tests finds a break from I(0) to I(1) in the mid-1970s and two of the tests find a break from I(0) to I(1) in the early, to mid-1950s. The results are discussed in light of the rational bubble hypothesis.

Suggested Citation

  • Robert Sollis, 2006. "Testing for bubbles: an application of tests for change in persistence," Applied Financial Economics, Taylor & Francis Journals, vol. 16(6), pages 491-498.
  • Handle: RePEc:taf:apfiec:v:16:y:2006:i:6:p:491-498 DOI: 10.1080/13504850500398989
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    Cited by:

    1. Otavio Ribeiro de Medeiros and Vitor Leone, 2012. "Multiple Changes in Persistence vs. Explosive Behaviour: The Dotcom Bubble," Working Papers 2012/02, Nottingham Trent University, Nottingham Business School, Economics Division.
    2. Michael Frömmel & Robinson Kruse, 2012. "Testing for a rational bubble under long memory," Quantitative Finance, Taylor & Francis Journals, pages 1723-1732.
    3. Chen, Shyh-Wei & Hsu, Chi-Sheng & Xie, Zixong, 2016. "Are there periodically collapsing bubbles in the stock markets? New international evidence," Economic Modelling, Elsevier, vol. 52(PB), pages 442-451.
    4. Kruse, Robinson, 2008. "Rational bubbles and fractional integration," Hannover Economic Papers (HEP) dp-394, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    5. S Coleman & K Sirichand, 2015. "Investigating Multiple Changes in Persistence in International Yields," Economic Issues Journal Articles, Economic Issues, vol. 20(1), pages 65-90, March.
    6. Park, Cheolbeom, 2010. "When does the dividend-price ratio predict stock returns?," Journal of Empirical Finance, Elsevier, vol. 17(1), pages 81-101, January.
    7. Asako, Kazumi & Liu, Zhentao, 2013. "A statistical model of speculative bubbles, with applications to the stock markets of the United States, Japan, and China," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2639-2651.
    8. Leone, Vitor & de Medeiros, Otavio Ribeiro, 2015. "Signalling the Dotcom bubble: A multiple changes in persistence approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 55(C), pages 77-86.

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