1988
DOI: 10.2307/2233912
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The Theory of Rational Bubbles in Stock Prices

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Cited by 350 publications
(241 citation statements)
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“…Measured price distortion reaches up to a 40% overvaluation in the beginning of the sample, according to the direct method (blue, solid), and up to a 20% overvaluation in July 2013 according to the unobserved component method(red, dotted). Moreover, there seem to be periods where the bubble component is found to be negative, thus violating the argument made by Diba and Grossman (1988b) about the impossibility of negative bubbles. This highlights the di culty in measuring bubbles as residuals since these can also be the result of a misspeci cation of the model, and there is no easy way of distinguishing between the two (Gürkaynak, 2008).…”
Section: A Comparison With Other Detection Methodsmentioning
confidence: 64%
“…Measured price distortion reaches up to a 40% overvaluation in the beginning of the sample, according to the direct method (blue, solid), and up to a 20% overvaluation in July 2013 according to the unobserved component method(red, dotted). Moreover, there seem to be periods where the bubble component is found to be negative, thus violating the argument made by Diba and Grossman (1988b) about the impossibility of negative bubbles. This highlights the di culty in measuring bubbles as residuals since these can also be the result of a misspeci cation of the model, and there is no easy way of distinguishing between the two (Gürkaynak, 2008).…”
Section: A Comparison With Other Detection Methodsmentioning
confidence: 64%
“…Such investigations include approaches based on variance bounds (see, for example, Shiller, 1981), tests for a bubble premium (Hardouvelis, 1988), tests based on cointegration analysis (Diba and Grossman, 1988), and tests based on regime switching models (van Norden, 1996). The latter of these approaches is a direct test for the presence of bubbles, whereas the former three are indirect tests that examine the distributional properties of prices and of fundamental measures.…”
Section: Introductionmentioning
confidence: 99%
“…This expectational difference equation is identical to the rational bubble condition in Diba and Grossman (1988). As a result, the rational bubble will have the same properties given in Diba and Grossman: first, the bubble can never be negative; and second, once a bubble ends it cannot be started again.…”
Section: Corollary 1 R T+1 = II T Mri Tmentioning
confidence: 53%