Empirical Assessment of the Present Value Model of Stock Prices Using the Data from Thailand’s Stock Market

Komain Jiranyakul

MPRA Paper from University Library of Munich, Germany

Abstract: This study examines whether bubbles are present in the Stock Exchange of Thailand. Three different methods are employed: variance bounds test, equity price bubbles test, and cointegration tests. The results from the variance bounds tests show that stock prices (proxied by the stock market index) diverge from their fundamental values. Speculative bubbles exist using the West’s two-step test. There is no cointegration between stock prices and dividends from the results of both Engle-Granger cointegration test and the bounds testing for cointegration. The divergence of stock prices from their fundamental value and no cointegration between stock prices and dividend may indicate the presence of bubbles in the stock market during the period of investigation.

Keywords: Stock prices; Present Value model; Variance Bounds Test; Cointegration; Equity Price Bubbles (search for similar items in EconPapers)
JEL-codes: C22 G20 (search for similar items in EconPapers)
Date: 2008-06
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Published in NIDA Economic Review 1.3(2008): pp. 24-36

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