Fundamental bubbles in equity markets
Florian Ielpo () and
Additional contact information
Florian Ielpo: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UNIGESTION
Mikita Kniahin: UNIGESTION
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
Using an affine model to compute the price of equities based on a dataset of macroeconomic factors, we propose a measure of equity bubbles. We use a dynamic affine term structure framework to price equity and bonds jointly, and investigate how prices are related to a set of macrofactors extracted from a large dataset of economic time series. We analyze the discrepancies between market and model implied equity prices and use them as a measure for bubbles. A bubble is diagnosed over a given period whenever the discrepancies are not stationary and impact the underlying economy consistently with the literature's findings, increasing over the shorter term economic activity before leading to a net loss in it. We perform the analysis over 3 major US and 3 major European equity indices over the 1990–2017 period and find bubbles only for two of the US equity indices, the S&P500 and the Dow Jones. © 2019, Springer-Verlag GmbH Germany, part of Springer Nature.
Keywords: Affine model; Bubble; Data-rich; Principal component analysis; Stationarity (search for similar items in EconPapers)
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-02800608
References: Add references at CitEc
Citations: Track citations by RSS feed
Published in Soft Computing, Springer Verlag, In press, ⟨10.1007/s00500-019-04514-1⟩
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-02800608
Access Statistics for this paper
More papers in Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
Bibliographic data for series maintained by CCSD ().