 Testing for a rational bubble under long memoryMichael Frömmel and Robinson Kruse Quantitative Finance, 2012, vol. 12, issue 11, 1723-1732 Abstract: We analyse the time series properties of the S&P500 dividend--price ratio in the light of long-memory, structural breaks and rational bubbles. We find an increase in the long-memory parameter in the early 1990s by applying a test recently proposed by Sibbertsen and Kruse [ J. Time Series Anal. , 2009, 30 , 263--285]. An application of the unit root test against long memory of Demetrescu et al. [ Econometr. Theory , 2008, 24 , 176--215] suggests that the pre-break data can be characterized by long memory, while the post-break sample contains a unit root. These results reconcile two empirical findings that are seen as contradictory: on the one hand, they confirm the existence of fractional integration in the S&P500 log-dividend--price ratio and, on the other, they are consistent with the existence of a rational bubble. The result of a changing memory parameter in the dividend--price ratio has an important implication for the literature on return predictability: the shift from a stationary dividend--price ratio to a unit root process in 1991 is likely to have caused the well-documented failure of conventional return prediction models since the 1990s. Date: 2012 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:12:y:2012:i:11:p:1723-1732 Ordering information: This journal article can be ordered from DOI: 10.1080/14697688.2011.578151 Access Statistics for this article Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral More articles in Quantitative Finance from Taylor & Francis Journals |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.