Speculative bubbles or explosive fundamentals in stock prices? New evidence from SADF and GSADF tests

El Montasser, Ghassen; Naoui, Kamel; Fry, John

Abstract

This paper uses recently developed sequential ADF tests to distinguish between rational speculative bubbles and explosive fundamentals in the US Stock market. The sequential ADF tests are shown to be more sensitive than the conventional ADF test. Results also suggest the more refined GSADF test may deliver more consistent results compared to the SADF test. We find strong evidence of explosive behavior in real stock prices that cannot be attributed to explosive fundamentals. We find renewed evidence of a stock market bubble during the dot com boom but no evidence of a bubble at other times.

Citation

El Montasser, G., Naoui, K., & Fry, J. (2018). Speculative bubbles or explosive fundamentals in stock prices? New evidence from SADF and GSADF tests. Journal of Statistics and Management Systems, 21(1), 93-106. https://doi.org/10.1080/09720510.2017.1401799

• Journal Article Type: Article
• Acceptance Date: Feb 1, 2017
• Online Publication Date: Feb 13, 2018
• Publication Date: 2018
• Deposit Date: Feb 4, 2022
• Journal: Journal of Statistics and Management Systems
• Print ISSN: 0972-0510
• Electronic ISSN: 2169-0014
• Publisher: Taylor & Francis
• Peer Reviewed: Peer Reviewed
• Volume: 21
• Issue: 1
• Pages: 93-106
• DOI: https://doi.org/10.1080/09720510.2017.1401799
• Keywords: Rational bubbles; SADF test; GSADF test; Fundamental value; Explosive behavior
• Public URL: https://hull-repository.worktribe.com/output/3921036
• Related Public URLs: https://e-space.mmu.ac.uk/619504/