Towards a new model of speculative bubbles: nonparametric test with an application to the Tunisian Stock Index
Subject Areas :
International Journal of Finance, Accounting and Economics Studies
Nizar El Ouni
1
,
Mekki Hamdaoui
2
1 - Assistant Professor of Tunisia
2 - Assistant Professor of Tunisia
Received: 2011-05-17
Accepted : 2011-09-22
Published : 2012-05-31
Keywords:
Duration dependence,
rational speculative bubbles,
Weibull Model,
Abstract :
Bubbles in asset prices have fascinated researchers in finance. Identify asset bubbles, by circumstances, on the stock market has been a growing number of research theoretical and empirical. On a theoretical level, it was assumed that the price dynamics reflect irrational behavior of economic agents and, therefore, should be excluded from a deal with the truly rational economic agents Burmeister [1980], Cass and Shell [1983] , Tirole [1985] and Diba & Grossman [1988]. Rational theory and behavioral theory attempted to explain why bubbles occur Allen and Gale [2000] Abreu & Brunnermeier [2003], Scheinkman and Xiong [2003] and Men [2006]. This paper examines the presence of rational speculative bubbles in the Tunisian equity market (BVMT) over a sample period from January 2000 to December 2013 by means of a methodology based on a non-parametric duration dependence test. The results show evidence of negative duration dependence in runs of positive returns, a characteristic consistent with the presence of rational speculative bubbles. This paper employs the generalized Weibull model of Mudholkar, Srivastava, and Kollia (1996) to examine the nature of speculative bubbles in security prices. This model is sufficiently flexible to allow changes in the direction of duration dependence
References:
Blanchard, Oliver J.- Watson, Mark W. (1982), Bubbles, Rational Expectations and Financial Markets, in Crises in the Economic and Financial Structure, Paul Wachtel, ed. Lexington, MA: Lexington Books.
Boucher, Christophe (2003), “Testing for Rational Bubbles with Time Varying Risk Premium and Non-Linear Cointegration: Evidence from the US and French Stock Markets”,
Brooks, Chris- Katsaris, Apostolos (2003), “Rational Speculative Bubbles: An Empirical Investigation of the London Stock Exchange”, the Bulletin of Economic Research,
Vol. 55, p. 319-346.
Calverley, John (2004), Bubbles and How to Survive Them, Nicholas Brealey Publishing, Finland.
Chan, Kalok- McQueen, Grant.- Thorley, Steve. (1998), “Are There Rational Speculative Bubbles in Asian Stock Markets?”, Pacific-Basin Finance Journal, Vol. 6, p.125-151. The Journal of Accounting and Finance July/2011 190
Gurkaynak, Refet S. (2008), “Econometric Tests of Asset Price Bubbles: Taking Stock”, Journal of Economic Surveys, Vol. 22, No. 1, p. 166-186.
Harman, Yvette S.- Zuehlke Thomas W., (2004), “Duration Dependence Testing For Speculative Bubbles”, Journal of Economics and Finance, Vol. 28, No. 2, p. 147-154.
Jirasakuldech, Benjamas- Emekter, Riza- Rao, Ramesh P. (2008), “Do Thai Stock Prices Deviate from Fundamental Values?”, Pacific-Basin Finance Journal, Vol. 16, p.298-315.
Lavin, Angeline M.- Zorn, Thomas S., (2001), “Empirical Tests of the Fundamental-Value Hypothesis in Land Markets”, Journal of Real Estate and Economics, Vol. 22, p. 99-116.
Lehkonen, Heikki (2010), “Bubbles in China”, International Review of Financial Analysis, Vol. 19, No.2, pp. 113-117.
McQueen, Grant- Thorley, Steven (1994), “Bubbles, Stock Returns and Duration Dependence”, Journal of Financial and Quantitative Analysis, Vol. 29, No. 3, p. 379-401.
Tasci, H. Mehmet- Okuyan H. Aydın (2009), “Testing for Speculative Bubbles on ISE”, Journal of Dogus University, Vol. 10, No. 2, p. 272-283.
Zhang, Bing (2008), “Duration Dependence Test For Rational Bubbles in Chinese Stock Market”, Applied Economics Letters, Vol. 15, No. 8, p. 635-639.
Yu, Junk-Suk- Hassan, M. Kabir (2010), “Rational Speculative Bubbles in MENA Stock Markets”, Studies in Economics and Finance, Vol. 27, No. 3, p. 247-264.
Brook, C. & Katsaris, A. (2005). A three-regime model of speculative behavior: Modeling the evolution of the S&P 500 composite index. The Economic Journal, 115, 767-797.
Brooks, C., & Katsaris, A. (2003) Rational speculative bubbles: an empirical investigation of the London Stock Exchange, Bulletin of Economic Research, 55, 319–346.
Caporale, G.M. & Gil-Alana, L.A. (2004).Fractional cointegration and tests of present value models. Review of Financial Economics, 13, 245-258.
Chan, K., McQueen, G. & Thorley, S. (1998) Are there rational speculative bubbles in the Asian stock markets?. Pacific-Basin Finance Journal, 6, 125–51.
Chang, T., Chiu, C-C. & Nieh, C-C. (2007). Rational bubbles in the US stock market? Further evidence from a nonparametric cointegration test. Applied Economics Letters, 14, 517– 521.
Charemaza, W.W., & Deadman, D.F. (1991).Speculative bubbles with stochastic explosive roots: The failure of unit root testing. Journal of Empirical Finance, 2, 153-163.
Cuñado, J., Gil-Alana, L. A. & Gracia, F. (2007). Testing for stock market bubbles using nonlinear models and fractional integration, Applied Financial Economics. forthcoming.
Dass, N., Massa, M. & Patgiri, R. (2007). Mutual funds and bubbles: The Surprising Role of Contractual Incentives. Review of Financial Studies.forthcoming.
[23] DeMarzo, P.M., Kaniel, R. & Kremer,I. (2007). Relative Wealth Concerns and Financial Bubbles, Review of Financial Studies. forthcoming.
Evans, G. (1991). Pitfalls in testing for explosive bubbles in asset prices. American Economic Review, 81, 922–930.
Harman, Y. S. & Zuehlke, T. W.(2004). Duration dependence testing for speculative bubbles. Journal of Economics and Finance, 28, 147–55.
Jarque, C.M. & Bera, A.K.(1987). A test for normality of observations and regression Residuals. International Statistical Review, 55, 163-172.
Jiang, X., & Lee, B.(2005). An empirical test of the accounting-based residual income model and the traditional dividend discount model. Journal of Business, 78, 1465–1504.
Jirasakuldech, B., Emekter, R. & Rao R.P. (2008). Do Thai stock prices deviate from fundamental values? Pacific-Basin Finance Journal, 16, 297-305.