Rational Bubbles

3 On the Economic Relevance of Rational Bubbles 79 3. 1 Capital markets . . . . . . . . . 80 3. 1. 1 Efficient capital markets 86 3. 1. 2 Rational bubbles on capital markets. 93 3. 1. 3 Economic caveats . 103 3. 2 Foreign exchange markets 109 3. 3 Hyperinflation. . . . . . . 117 4 On Testing for Rational Bubbles 123 4. 1 Indirect tests . . . . . . . . . 123 4. 1. 1 Variance bounds tests 124 4. 1. 2 Specification tests . . . 137 4. 1. 3 Integration and cointegration tests 140 4. 1. 4 Final assessment of indirect tests . 150 4. 1. 5 A digression: Charemza, Deadman (1995) analysis. 151 4. 2 Direct tests . . . . . . . . . . . . . . . . . . . . . . . . 157 4. 2. 1 Deterministic bubble in German hyperinflation. 158 4. 2. 2 Intrinsic bubbles on stock markets. 163 4. 2. 3 An econometric caveat . . . . . 168 4. 2. 4 Final assessment of direct tests 172 5 On the Explanatory Power of Rational Bubbles on the G- man Stock Market 175 5. 1 Data . . . . . . . 175 5. 2 Direct test for rational bubbles 181 5. 2. 1 Temporary Markovian bubbles. 184 5. 2. 2 Temporary intrinsic bubbles . . 193 ix 5. 2. 3 Permanent intrinsic bubbles 198 5. 3 A digression: Testing for unit roots 204 6 Concluding Remarks 215 A Results 221 A. 1 Temporary markovian bubbles. 221 A. 2 Temporary intrinsic bubbles . . 225 A. 3 Permanent intrinsic bubbles - Class 1 to 2 229 A. 4 Permanent intrinsic bubbles - Class 3 to 6 230 A. 5 Integration tests. . . . . . . . . . . . . . .

1 Introduction. - 2 On the Theoretical Derivability of Rational Bubbles. - 2. 1 Statistical framework. - 2. 2 Rational expectations. - 2. 3 Solution procedure. - 2. 4 Bubble processes. - 3 On the Economic Relevance of Rational Bubbles. - 3. 1 Capital markets. - 3. 2 Foreign exchange markets. - 3. 3 Hyperinflation. - 4 On Testing for Rational Bubbles. - 4. 1 Indirect tests. - 4. 2 Direct tests. - 5 On the Explanatory Power of Rational Bubbles on the German Stock Market. - 5. 1 Data. - 5. 2 Direct test for rational bubbles. - 5. 3 A digression: Testing for unit roots. - 6 Concluding Remarks. - A Results. - A. 1 Temporary markovian bubbles. - A. 2 Temporary intrinsic bubbles. - A. 3 Permanent intrinsic bubbles Class 1 to 2. - A. 4 Permanent intrinsic bubbles Class 3 to 6. - A. 5 Integration tests. - A. 5. 1 Preliminary regression of endogenous processes. - A. 5. 2 Preliminary regression of exogenous processes. - A. 5. 3 Testing for unit roots in levels. - A. 5. 4 Testing for unit roots in logs. - B Distributional Properties and Critical Values. - B. 1 Distributional properties of t-statistics. - B. 2 Critical values of t-statistics. - List of Figures. - List of Tables.