Rational Bubbles and the S&P 500. An empirical approach
DOI:
https://doi.org/10.35319/lajed.202135441Keywords:
Bubble Estimation, Kalman Filter, Stochastic Discount FactorAbstract
We analyze if the dynamics of the S&P500 resemble those of a rational bubble. We find positive evidence in this question by applying the Kalman Filter to a suitable asset pricing model proposed and our conclusion is robust to three different stochastic discount factors SDFs considered: Linear Utility, Log Utility and CRRA utility. We also find evidence of a relationship between the type of SDF and the size of a bubble in the S&P500 case.
Downloads
References
Diba, B. T. and Grossman, H. I. (1988). The theory of rational bubbles in stock prices. The Economic Journal, 98(392), 746-754.
Evans, G. W. (1991). Pitfalls in testing for explosive bubbles in asset prices. The American Economic Review, 81(4), 922-930.
Galí, J. (2014). Monetary policy and rational asset price bubbles. American Economic Review, 104(3), 721-752.
Gürkaynak, R. S. (2008). Econometric tests of asset price bubbles: Takingstock. Journal of Economic Surveys, 22(1), 166-186.
Martin, A. and Ventura, J. (2016). Managing credit bubbles. Journal of the European Economic Association, 14(3), 753-789.
Norden, S. V. (1996). Regime switching as a test for exchange rate bubbles. Journal of Applied Econometrics, 11(3), 219-251.
Phillips, P. C. B., Wu, Y. and Yu, J. (2011). Explosive behavior in the1990s nasdaq: When did exuberance escalate asset values?. International Economic Review, 52(1), 201-226.
Santos, M. S. and Woodford, M. (1997). Rational asset pricing bubbles. Econometrica, 65(1), 19-57.
Sims, C. A. (1988). Bayesian skepticism on unit root econometrics. Journal of Economic Dynamics and Control, 12(2), 463-474.
So, B. S. and Shin, D. W. (2001). An invariant sign test for random walks based on recursive median adjustment. Journal of Econometrics, 102(2), 197-229.
Uribe, J. M. and Mejía, J. F. (2014). Burbujas financieras y comportamiento reciente de los mercados de acciones en América Latina. Lecturas de Economía, 81,57-90.
Wu, Y. (1997). Rational bubbles in the stock market: Accounting for the u.s. stock - price volatility. Economic Inquiry, 35(2), 309-319.
