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Rational Speculative Bubbles in the Thai Stock Market: Econometric Tests and Implications

Author

Listed:
  • Sethapong Watanapalachaikul

    (Centre for Strategic Economic Studies, Victoria University, PO Box 14428, Melbourne, Victoria 8001, Australia)

  • Sardar M. N. Islam

    (Centre for Strategic Economic Studies, Victoria University, PO Box 14428, Melbourne, Victoria 8001, Australia)

Abstract

Understanding of factors like economic fundamentals or bubbles that normally determine the returns of stock in any emerging market such as the Thai stock market is essential for academic, investment planning and public policy reasons. An empirical study of the existence of rational speculative bubbles in the Thai stock market is undertaken by using the Weibull Hazard model. The conventional Weibull Hazard model is used as a benchmark model for other speculative bubble models. Empirical results suggest the presence of rational speculative bubbles in the Thai stock market, especially during the pre-crisis period. While rational speculative bubbles were not present immediately after the post-crisis period, some were observed a few years after the crisis. A possible explanation for such a result concerning rational speculative behaviour and bubbles in the emerging stock markets could be attributed to the presence of market imperfections in emerging stock markets, requiring institutional and policy developments to ensure efficient operation of the stock market.

Suggested Citation

  • Sethapong Watanapalachaikul & Sardar M. N. Islam, 2007. "Rational Speculative Bubbles in the Thai Stock Market: Econometric Tests and Implications," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 1-13.
    • Handle: RePEc:wsi:rpbfmp:v:10:y:2007:i:01:n:s0219091507000921
    DOI: 10.1142/S0219091507000921
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    References listed on IDEAS

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    1. Mathias Binswanger, 1999. "Stock Markets, Speculative Bubbles and Economic Growth," Books, Edward Elgar Publishing, number 1749.
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    Cited by:

    1. Alberto Madrid & Luis A. Hierro, 2015. "Burbujas especulativas: el estado de una cuestión poco estudiada," Cuadernos de Economía - Spanish Journal of Economics and Finance, Asociación Cuadernos de Economía, vol. 38(108), pages 123-138, Septiembr.
    2. Fredj Jawadi & Georges Prat, 2017. "Equity prices and fundamentals: a DDM–APT mixed approach," Review of Quantitative Finance and Accounting, Springer, vol. 49(3), pages 661-695, October.
    3. Wang, Miao & Wong, M. C. Sunny, 2015. "Rational speculative bubbles in the US stock market and political cycles," Finance Research Letters, Elsevier, vol. 13(C), pages 1-9.
    4. Deev, Oleg & Kajurova, Veronika & Stavarek, Daniel, 2013. "Testing rational speculative bubbles in Central European stock markets," MPRA Paper 46582, University Library of Munich, Germany.

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    More about this item

    Keywords

    Financial markets; bubbles; Thai stock market; Weibull Hazard model; market imperfections;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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