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Identifying asset price booms and busts with quantile regressions

  • José Ferreira Machado
  • João Sousa

This paper presents a methodology for detecting asset price booms and busts using non-parametric quantile regressions. The method consists in estimating the distribution of real stock prices as a function of fundamental determinants of stock returns, namely real economic activity and real interest rates. It is shown that changes in fundamentals affect not only the location but also the shape of the conditional distribution of stock prices. Asset price booms and busts are identified as realizations on the tails of that distribution. Then we use several indicators to analyse the behaviour of money and credit around the boom and bust episodes.

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File URL: http://www.bportugal.pt/en-US/BdP%20Publications%20Research/WP200608.pdf
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Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w200608.

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Date of creation: 2006
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Handle: RePEc:ptu:wpaper:w200608
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  1. Allan Timmermann & Gabriel Perez-Quiros, 2000. "Business Cycle Asymmetries in Stock Returns: Evidence from Higher Order Moments and Conditional Densities," FMG Discussion Papers dp360, Financial Markets Group.
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