|
|||||
|
|
Testing for rational bubbles in a coexplosive vector autoregression |
|
| Authors: | Tom Engsted Bent Nielsen |
| Affiliation: | 1. CREATES, Department of Economics and Business, Aarhus University, DK‐8000 Aarhus C, Denmark. E‐mail: tengsted@creates.au.dk;2. Nuffield College, New Road, Oxford OX1 1NF, UK. E‐mail: bent.nielsen@nuffield.ox.ac.uk |
| Abstract: | Summary Asset bubbles can be described through the rational bubble solution of the standard stock price model linking stock prices and dividends. We show how the hypothesis of a rational bubble can be tested in the context of a bivariate coexplosive vector autoregression. The methodology is illustrated using US stock prices and dividends for the period 1974–2000. |
| Keywords: | Cointegration Explosiveness and coexplosiveness Likelihood ratio tests Rational bubbles Vector autoregression |