How Big is the Speculative Component in Australian Share Prices?

Angela Black, Patricia Fraser () and Nicolaas Groenewold ()
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Patricia Fraser: Department of Accountancy and Finance, The University of Aberdeen
Nicolaas Groenewold: Department of Economics, The University of Western Australia

No 01-14, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: Using 20 years of Australian quarterly data, this paper decomposes Australian share prices into their fundamental and speculative components. To do this we derive the fundamental share-price-output ratio and, hence, the fundamental share price from a resticted vector-autoregressive model relating the aggregate real share-price index to real output. Our estimates use different assumptions regarding shareholders required real rate of return. Our results imply that a significant speculative component exists in share prices (around 10% in mid-2000) and that share-price over/underevaluation has a life-span of around 4 years.

JEL-codes: C22 E0 E3 G1 G12 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2001
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Journal Article: How big is the speculative component in Australian share prices? (2003)
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