Testing for rational bubbles in a co-explosive vector autoregression.
We derive the parameter restrictions that a standard equity market model implies for a bivariate vector autoregression for stock prices and dividends, and we show how to test these restrictions using likelihood ratio tests. The restrictions, which imply that stock returns are unpredictable, are deri...
| Κύριοι συγγραφείς: | , |
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| Μορφή: | Working paper |
| Γλώσσα: | English |
| Έκδοση: |
Nuffield College (University of Oxford)
2010
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| _version_ | 1826270055778746368 |
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| author | Engsted, T Nielsen, B |
| author_facet | Engsted, T Nielsen, B |
| author_sort | Engsted, T |
| collection | OXFORD |
| description | We derive the parameter restrictions that a standard equity market model implies for a bivariate vector autoregression for stock prices and dividends, and we show how to test these restrictions using likelihood ratio tests. The restrictions, which imply that stock returns are unpredictable, are derived both for a model without bubbles and for a model with a rational bubble. In both cases we show how the restrictions can be tested through standard chi-squared inference. The analysis for the no-bubble case is done within the traditional Johansen model for I(1) variables, while the bubble model is analysed using a co-explosive framework. The methodology is illustrated using US stock prices and dividends for the period 1872-2000. |
| first_indexed | 2024-03-06T21:34:53Z |
| format | Working paper |
| id | oxford-uuid:45e370f3-5e98-4ce6-9305-3c55e24abd7b |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-06T21:34:53Z |
| publishDate | 2010 |
| publisher | Nuffield College (University of Oxford) |
| record_format | dspace |
| spelling | oxford-uuid:45e370f3-5e98-4ce6-9305-3c55e24abd7b2022-03-26T15:10:33ZTesting for rational bubbles in a co-explosive vector autoregression.Working paperhttp://purl.org/coar/resource_type/c_8042uuid:45e370f3-5e98-4ce6-9305-3c55e24abd7bEnglishDepartment of Economics - ePrintsNuffield College (University of Oxford)2010Engsted, TNielsen, BWe derive the parameter restrictions that a standard equity market model implies for a bivariate vector autoregression for stock prices and dividends, and we show how to test these restrictions using likelihood ratio tests. The restrictions, which imply that stock returns are unpredictable, are derived both for a model without bubbles and for a model with a rational bubble. In both cases we show how the restrictions can be tested through standard chi-squared inference. The analysis for the no-bubble case is done within the traditional Johansen model for I(1) variables, while the bubble model is analysed using a co-explosive framework. The methodology is illustrated using US stock prices and dividends for the period 1872-2000. |
| spellingShingle | Engsted, T Nielsen, B Testing for rational bubbles in a co-explosive vector autoregression. |
| title | Testing for rational bubbles in a co-explosive vector autoregression. |
| title_full | Testing for rational bubbles in a co-explosive vector autoregression. |
| title_fullStr | Testing for rational bubbles in a co-explosive vector autoregression. |
| title_full_unstemmed | Testing for rational bubbles in a co-explosive vector autoregression. |
| title_short | Testing for rational bubbles in a co-explosive vector autoregression. |
| title_sort | testing for rational bubbles in a co explosive vector autoregression |
| work_keys_str_mv | AT engstedt testingforrationalbubblesinacoexplosivevectorautoregression AT nielsenb testingforrationalbubblesinacoexplosivevectorautoregression |