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Speculative Bubbles in the S&P 500: Was the Tech Bubble Confined to the Tech Sector?

  • Chris Brooks

    ()

    (ICMA Centre, University of Reading)

  • Apostolos Katsaris

    ()

    (ICMA Centre, University of Reading)

This study tests for the presence of periodically, partially collapsing speculative bubbles in the sector indices of the S&P 500 using a regime-switching approach. We also employ an augmented model that includes trading volume as a technical indicator to improve the ability of the model to time bubble collapses and to better capture the temporal variations in returns. We find that over 70% of the S&P 500 index by market capitalization, and seven of its ten sector component indices exhibited bubble-like behaviour over our sample period. Thus the speculative bubble that grew in the 1990’s and subsequently collapsed was pervasive in the US equity market. The bubble affected numerous sectors including energy and industrials, rather than being confined to information technology, telecommunications and the media.

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File URL: http://www.icmacentre.ac.uk/pdf/discussion/DP2006-07.pdf
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Paper provided by Henley Business School, Reading University in its series ICMA Centre Discussion Papers in Finance with number icma-dp2006-07.

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Length: 34 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:rdg:icmadp:icma-dp2006-07
Contact details of provider: Postal: PO Box 218, Whiteknights, Reading, Berks, RG6 6AA
Phone: +44 (0) 118 378 8226
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Web page: http://www.henley.reading.ac.uk/

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