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

Author

Listed:
  • Jiranyakul, Komain

Abstract

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.

Suggested Citation

  • Jiranyakul, Komain, 2008. "Empirical Assessment of the Present Value Model of Stock Prices Using the Data from Thailand’s Stock Market," MPRA Paper 55156, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:55156
    as

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    File URL: https://mpra.ub.uni-muenchen.de/55156/1/MPRA_paper_55156.pdf
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    References listed on IDEAS

    as
    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. 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.
    8. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Stock prices; Present Value model; Variance Bounds Test; Cointegration; Equity Price Bubbles;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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