Abstract
This study tests for the presence of periodically, partially collapsing speculative bubbles in the sector indices of the S&P 500 using a regime-switching approach. We also employ an augmented model that includes trading volume as a technical indicator to improve the ability of the model to time bubble collapses and to better capture the temporal variations in returns. We find that well over half of the S&P 500 index by market capitalization and seven of its ten sector component indices exhibited at least some bubble-like behavior over our sample period. Thus the speculative bubble that grew in the 1990s and subsequently collapsed was surprisingly pervasive in the US equity market and it affected numerous sectors including financials and general industrials, rather than being confined to information technology, telecommunications and the media. In addition, we develop a joint model for cross-sectional contagion of bubbles across the sectors and we examine whether there is evidence for bubble spillovers.
| Original language | English |
|---|---|
| Pages (from-to) | 345-361 |
| Number of pages | 17 |
| Journal | Journal of empirical finance |
| Volume | 17 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - Jun 2010 |
Keywords
- Stock market bubbles
- Fundamental values
- Dividends
- Regime switching
- Speculative bubble tests
- S-AND-P-500 COMPOSITE-INDEX
- STOCK-PRICES
- RATIONAL BUBBLES
- VARIANCE BOUNDS
- TESTS
- MARKET
- EXCHANGE
- CRASHES
- REGIME
- MODELS