Are There Rational Bubbles in the US Stock Market? Overview and a New Test

ASSET PRICE BUBBLES: IMPLICATIONS FOR MONETARY AND REGULATORY POLICY, ELSEVIER SCIENCE, George Kaufman, ed., pp. 125-144, Elsevier Science, 2001

27 Pages Posted: 17 Jan 2008

See all articles by Ramaprasad Bhar

Ramaprasad Bhar

UNSW Business School, Risk and Actuarial Studies

A. (Tassos) G. Malliaris

Loyola University of Chicago - Department of Economics

Abstract

A speculative bubble is usually defined as the difference between the market value of a security and its fundamental value. Although there are several important theoretical issues surrounding the topic of asset bubbles, the existence of bubbles is inherently an empirical issue that has not been settled yet. This paper reviews several important tests and offers one more methodology that improves upon the existing ones. The new test is applied to the annual US stock market data spanning over a century and at the monthly frequency covering the post-war period. Although we find evidence of stock price bubble in both cases, the post-war period exhibit only positive component whereas the annual data exhibit some episode of negative bubble.

Keywords: Stock Market, Asset Bubbles, Testing for Market Overvaluation, Fundamental Valuation

JEL Classification: C1, C4, G1, E2

Suggested Citation

Bhar, Ramaprasad and Malliaris, A. (Tassos) G., Are There Rational Bubbles in the US Stock Market? Overview and a New Test. ASSET PRICE BUBBLES: IMPLICATIONS FOR MONETARY AND REGULATORY POLICY, ELSEVIER SCIENCE, George Kaufman, ed., pp. 125-144, Elsevier Science, 2001. Available at SSRN: https://ssrn.com/abstract=1084582

Ramaprasad Bhar

UNSW Business School, Risk and Actuarial Studies ( email )

Sydney, NSW 2052
Australia

A. (Tassos) G. Malliaris (Contact Author)

Loyola University of Chicago - Department of Economics ( email )

16 E. Pearson Ave
Quinlan School of Business
Chicago, IL 60611
United States
312-915-6063 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
333
Abstract Views
1,281
rank
96,744
PlumX Metrics