A Specification Test for Speculative Bubbles
NBER Working Paper No. 2067 (Also Reprint No. r0968)
The set of parameters needed to calculate the expected present discounted value of a stream of dividends can be estimated in two ways. One may test for speculative bubbles, or fads, by testing whether the two estimates are the same. When the test is applied to some annual U.S. stock market data, the data usually reject the null hypothesis of no bubbles. The test is of general interest since it may be applied to a wide class of linear rational expectations models.
Document Object Identifier (DOI): 10.3386/w2067
Published: West, Kenneth D. "A Specification Test for Speculative Bubbles," The Quarterly Journal of Economics, Vol. CII, No. 3, August 1987, pp. 553-580.
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