The paper suggests there may be an I(1) stochastic bubble trend in the stock price even if the I(1) stock price and dividend are cointegrated that are usually confirmed in the empirical tests. For this, we show the long run equilibrium of stock price may be decomposed of fundamental and bubble tochastic trends; i.e., the sum of dividend innovations and the sum of innovations that are orthogonal with the dividend innovations, through the Beveridge Nelson decomposition and projection. Under this VAR construction, there is an error correction mechanism where the stock price converges to its long run equilibrium which includes the stated stochastic bubble trend. In application for the US monthly data 1871.1-2010.9, the fluctuation of stock price was mostly explained not by the stochastic trend of dividend shocks but by the stochastic bubble trend confirming the findings of Shiller-LeRoy and Porter.
JEL Classification: C32.
key words and phrases: stock price; stochastic bubble trend; error correction model; Beveridge Nelson decomposition; projection
학회소식
학회소식
[2011년 제 1차] Inference for stochastic bubble trend in stock pric
작성자 : 관리자
조회수 : 1077
게시일 :
2011-02-23