TESTING FOR STOCK PRICE BUBBLES: A REVIEW OF ECONOMETRIC TOOLS

Bala Arshanapalli and William Nelson

The International Journal of Business and Finance Research, 2016, vol. 10, issue 4, 29-42

Abstract: This paper presents an overview of several econometric tools available to test for the presences of asset price bubbles. For demonstrative purpose, the tools were applied to historical stock price and dividend data starting from 1871 through 2014. The earliest tools developed were Shiller’s variance bound tests and West’s two step procedure. Though these tools are useful in detecting asset prices, they are subject to some serious econometric issues. To address these limitations, Cointegration methods were used to detect asset price bubbles. Unfortunately, if there are collapsing bubbles, Cointegration techniques cannot identify multiple bubbles. To overcome this Phillips, Shi and Yu (2015) developed a right tailed Augmented DickeyFuller test. This test not only identifies multiple bubbles but also dates the starting and ending period of a bubble. Availability of such real time monitoring tool would significantly help investors, retirees, and portfolio managers to rebalance their portfolios during such bubble periods

Keywords: Stock Price Bubble; Cointegration; and Right Tail ADF (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v10n4-2016/IJBFR-V10N4-2016-3.pdf (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:ibf:ijbfre:v:10:y:2016:i:4:p:29-42

Access Statistics for this article

The International Journal of Business and Finance Research is currently edited by Terrance Jalbert

More articles in The International Journal of Business and Finance Research from The Institute for Business and Finance Research
Bibliographic data for series maintained by Mercedes Jalbert ( this e-mail address is bad, please contact ).