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Nonlinear short-run adjustments in US stock market returns

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  • Tsangyao Chang
  • Ming Jing Yang
  • Chien-Chung Nieh
  • Chi-Chen Chiu

Abstract

Using the considerably powerful nonparametric cointegration tests proposed by Bierens (1997, 2004), we do not find any evidence indicative of the existence of rational bubbles in the US stock market during the long period of 1871 to 2002. In addition, with the application of a logistic smooth transition error-correction model designed to detect the nonlinear short-run adjustments to the long-run equilibrium, we also obtain substantial empirical evidence in favour of the so-called noise trader models where arbitrageurs are reluctant to immediately engage in trading when stock returns deviate insufficiently from their fundamental value.

Suggested Citation

  • Tsangyao Chang & Ming Jing Yang & Chien-Chung Nieh & Chi-Chen Chiu, 2008. "Nonlinear short-run adjustments in US stock market returns," Applied Financial Economics, Taylor & Francis Journals, vol. 18(13), pages 1075-1083.
    • Handle: RePEc:taf:apfiec:v:18:y:2008:i:13:p:1075-1083
    DOI: 10.1080/09603100701408148
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    References listed on IDEAS

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    Cited by:

    1. Kim Hiang Liow, 2008. "Financial Crisis and Asian Real Estate Securities Market Interdependence: Some Additional Evidence," Journal of Property Research, Taylor & Francis Journals, vol. 25(2), pages 127-155, November.

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