A Direct Test of Rational Bubbles

Friedrich Geiecke and Mark Trede ()

No 1310, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster

Abstract: The recent introduction of new derivatives with future dividend payments as underlyings allows to construct a direct test of rational bubbles. We suggest a simple, new method to calculate the fundamental value of stock indices. Using this approach, bubbles become observable. We calculate the time series of the bubble component of the Euro-Stoxx 50 index and investigate its properties. Using a formal hypothesis test we find that the behavior of the bubble is compatible with rationality.

Keywords: speculative rational bubbles; martingale tests; fundamental value; dividend expectation (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-03
New Economics Papers: this item is included in nep-ban, nep-ecm, nep-fmk and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.wiwi.uni-muenster.de/cqe/sites/cqe/fil ... r/CQE_WP_13_2010.pdf Version of March, 2010 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cqe:wpaper:1310

Access Statistics for this paper

More papers in CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster Am Stadtgraben 9, 48143 Münster, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Susanne Deckwitz ().