On the performance of West's bubble test: A simulation approach

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Yuksel A., Akdeniz L., Salih A.

APPLIED MATHEMATICS AND COMPUTATION, cilt.217, sa.7, ss.3236-3247, 2010 (SCI-Expanded) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 217 Sayı: 7
  • Basım Tarihi: 2010
  • Doi Numarası: 10.1016/j.amc.2010.08.056
  • Dergi Adı: APPLIED MATHEMATICS AND COMPUTATION
  • Derginin Tarandığı İndeksler: Science Citation Index Expanded (SCI-EXPANDED), Social Sciences Citation Index (SSCI), Scopus
  • Sayfa Sayıları: ss.3236-3247
  • Anahtar Kelimeler: Speculative bubble test, Present value model, Asset pricing, INTRINSIC BUBBLES, RATIONAL BUBBLES, PRICES, FUNDAMENTALS, TOO
  • TED Üniversitesi Adresli: Hayır

Özet

In this research we examine the ability of West's bubble test [1] in detecting speculative bubbles using Brock's (1982) [2] intertemporal general equilibrium model of asset pricing as the basis for a simulation study. In this setting, (1) the economy, by construction is efficient and produces the maximally possible amount of welfare for society, and (2) asset prices reflect the utility-maximizing behavior of consumers and the profit-maximizing behavior of firms. We find that the West's bubble test flag as "bubbles" in the simulated data yet the data is produced from an economy in which markets are efficient in welfare production. (C) 2010 Elsevier Inc. All rights reserved.