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Empirical Assessment of the Present Value Model of Stock Prices Using the Data from Thailand’s Stock Market

Listed author(s):
  • Jiranyakul, Komain

This study examines whether bubbles are present in the Stock Exchange of Thailand. Three different methods are employed: variance bounds test, equity price bubbles test, and cointegration tests. The results from the variance bounds tests show that stock prices (proxied by the stock market index) diverge from their fundamental values. Speculative bubbles exist using the West’s two-step test. There is no cointegration between stock prices and dividends from the results of both Engle-Granger cointegration test and the bounds testing for cointegration. The divergence of stock prices from their fundamental value and no cointegration between stock prices and dividend may indicate the presence of bubbles in the stock market during the period of investigation.

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File URL: https://mpra.ub.uni-muenchen.de/55156/1/MPRA_paper_55156.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 55156.

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Date of creation: Jun 2008
Publication status: Published in NIDA Economic Review 1.3(2008): pp. 24-36
Handle: RePEc:pra:mprapa:55156
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  1. Refet S. Gürkaynak, 2008. "Econometric Tests Of Asset Price Bubbles: Taking Stock ," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 166-186, February.
  2. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  3. Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July.
  4. Chris Brooks & Apostolos Katsaris, 2003. "Rational Speculative Bubbles: An Empirical Investigation of the London Stock Exchange," Bulletin of Economic Research, Wiley Blackwell, vol. 55(4), pages 319-346, October.
  5. Kenneth D. West, 1987. "A Specification Test for Speculative Bubbles," The Quarterly Journal of Economics, Oxford University Press, vol. 102(3), pages 553-580.
  6. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
  7. LeRoy, Stephen F & Porter, Richard D, 1981. "The Present-Value Relation: Tests Based on Implied Variance Bounds," Econometrica, Econometric Society, vol. 49(3), pages 555-574, May.
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