Rational Speculative Bubbles: Evidence from Asian Stock Markets

29 Pages Posted: 9 Jan 2018 Last revised: 24 Sep 2019

See all articles by Kenneth Szulczyk

Kenneth Szulczyk

Curtin University, Malaysia

Muhammad A. Cheema

University of Waikato New Zealand

Mark J. Holmes

University of Waikato - Management School, Department of Economics

Date Written: January 4, 2018

Abstract

We scrutinize China, Hong Kong, Indonesia, Japan, Malaysia, Philippines, South Korea, Taiwan, and Thailand for the presence of rational bubbles by employing several tests on a large dataset that includes three bubble episodes. We also convert most tests into recursive to overcome structural breaks in the data that improve a bubble’s detection. The unit root tests exhibit bubbles in all markets while the sup augmented Dickey-Fuller test suggests Hong Kong, Japan, and Thailand exhibit an explosive process. The cointegration tests show that Hong Kong, Japan, Malaysia, and Thailand may have bubbles while the explosiveness test shows evidence of bubbles in all markets for both weekly and monthly data. However, the duration dependence test identifies bubbles in six (two) Asian markets for weekly (monthly) returns. Thus, our results suggest that the rational bubble tests are enhanced from recursive tests using a large dataset that includes multiple bubble episodes.

Keywords: rational bubble, cointegration test, explosiveness trend regression test, explosive unit root test, duration dependence test

JEL Classification: G12, G14, G15, C41, C52, F30

Suggested Citation

Szulczyk, Kenneth and Cheema, Muhammad A. and Holmes, Mark J., Rational Speculative Bubbles: Evidence from Asian Stock Markets (January 4, 2018). Available at SSRN: https://ssrn.com/abstract=3096400 or http://dx.doi.org/10.2139/ssrn.3096400

Kenneth Szulczyk

Curtin University, Malaysia ( email )

CDT 250
Miri, Sarawak 98009
Malaysia

Muhammad A. Cheema (Contact Author)

University of Waikato New Zealand ( email )

Hamilton, 3216
New Zealand

Mark J. Holmes

University of Waikato - Management School, Department of Economics ( email )

Hamilton
New Zealand

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