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Comparative Research of Tests for Rational Bubbles in Stock Markets

Author: HuJiangFeng
Tutor: YangDeQuan
School: Dalian University of Technology
Course: Finance
Keywords: Rational bubble Variance circles Specification test Cointegration
CLC: F224
Type: Master's thesis
Year: 2006
Downloads: 253
Quote: 0
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Abstract

Currently, the test method for the stock market rational bubble, but the conclusions obtained by the different methods of testing are often different, even completely opposite. Chaotic conclusion of the study the economics profession and the regulatory authorities in the face of so many ways I do not know which method to choose more appropriate. These methods are still not unanimous conclusion in the end one is better. For this paper through the combination of theoretical analysis and empirical analysis of four typical rational bubble test method comparison studies. The so-called stock market bubble, it is generally believed that stock market prices deviate from their fundamental value, and rational expectations of the fundamental value of future dividends discounted to represent. As defined by the no-arbitrage conditions in the framework of rational expectations, so they put this foam called rational bubble. According to the changing characteristics of rational bubble, generally divided into three categories: the Markov foam, the immanence foam, external foam. Very complex rational bubble solution set, the current testing methods can not test all foam, but existing methods can be roughly divided into two categories: one is a test from the general sense of rational bubble exists, and the other is testing the uncertainty foam and inner foam Markov foam. So far, still no for the external bubble test method. The empirical part of the above theory as a guide, select a common and typical of the four test methods that variance circles inspection, set test unit root and cointegration tests and inner foam inspection. Their comparison test ideas, prerequisite and empirical results, concluded: variance circles inspection is to market the test of the effectiveness of the design method can not be used to test the existence of rational bubbles; the set test design ideas very clever, The only possible through appropriate model specification tests to rule out other possibilities such bubble exists refused foam null hypothesis, the conclusions of the examination with some convincing; unit root and cointegration tests alone can not be used as an additional means of other methods ; intrinsic bubble Inspection as a direct test method directly set rational bubble model, correlation coefficients significantly as long as the test can be considered intrinsic rational bubble. Further, the process of operation of the method of the internal bubble test is also relatively simple. Therefore, in the four test methods, immanence foam test is the best set of test methods followed the unit root test and cointegration test can be used as a supplement. In addition, this paper analysis and further discussion of the rational bubble model and test methods that these rational bubble test methods there are still some important shortcomings and suggest improvements. This paper argues that the the rational bubble test the nature of the problem can be attributed to asset pricing problems.

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