Rational speculative bubbles: an empirical investigation of the London Stock Exchange

Brooks, C. ORCID: https://orcid.org/0000-0002-2668-1153 and Katsaris, A. (2003) Rational speculative bubbles: an empirical investigation of the London Stock Exchange. Bulletin of Economic Research, 55 (4). pp. 319-346. ISSN 1467-8586 doi: 10.1111/1467-8586.00179

Abstract/Summary

In recent years, a sharp divergence of London Stock Exchange equity prices from dividends has been noted. In this paper, we examine whether this divergence can be explained by reference to the existence of a speculative bubble. Three different empirical methodologies are used: variance bounds tests, bubble specification tests, and cointegration tests based on both ex post and ex ante data. We find that, stock prices diverged significantly from their fundamental values during the late 1990's, and that this divergence has all the characteristics of a bubble.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/21314
Identification Number/DOI	10.1111/1467-8586.00179
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Uncontrolled Keywords	Stock market bubbles;fundamental values;dividends;variance bounds;cointegration;bubble specification tests
Publisher	Blackwell Publishing
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