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Bubbles in the Finnish and US equities markets

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  • Taipalus, Katja

Abstract

Tests for unit roots in log dividend yields, which are consistent with `rational bubbles' in stock prices, are conducted for the S&P500 and Finnish stock market indexes.In addition to the traditional unit root tests, we split the data into 10-year segments and use frequency domain analysis to test for the presence of unit roots in the dividend yield data.The results strongly suggest the existence of bubbles in both the US and Finnish markets.Finally we develop a novel dividend yield-based method to track periods when stock prices divert their fundamental levels. This indicator produces promising results, as it seems to have some forecasting ability concerning booms and busts in the stock markets.

Suggested Citation

  • Taipalus, Katja, 2006. "Bubbles in the Finnish and US equities markets," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number sm2006_035, July.
    • Handle: RePEc:zbw:bofism:sm2006_035
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    References listed on IDEAS

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    Cited by:

    1. Taipalus, Katja, 2012. "Signaling asset price bubbles with time-series methods," Bank of Finland Research Discussion Papers 7/2012, Bank of Finland.
    2. Taipalus, Katja, 2012. "Detecting asset price bubbles with time-series methods," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number sm2012_047, July.
    3. Virtanen, Timo & Tölö, Eero & Virén, Matti & Taipalus, Katja, 2016. "Use of unit root methods in early warning of financial crises," Bank of Finland Research Discussion Papers 27/2016, Bank of Finland.
    4. Nyberg, Peter & Vaihekoski, Mika, 2014. "Descriptive analysis of the Finnish stock market: Part II," Bank of Finland Research Discussion Papers 10/2014, Bank of Finland.

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    More about this item

    Keywords

    equity price; bubble; rolling ADF;
    All these keywords.

    JEL classification:

    • P50 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - General

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