1988•Working paperOpen access

Testing for Speculative Bubbles in Stock Prices

Asli Demirgüç‐Kunt, Hashem Dezhbakhsh

Abstract

A modified version of West's (1987) method for investigating the possibility of speculative bubbles in stock prices is recommended that is computationally simpler and, unlike West's method, tests the "no bubble" hypothesis directly.The proposed method is applied to long-term annual U.S. stock-market data.Contrary to West's findings, no evidence of speculative bubbles in stock prices during 1871-1981 or 1871-1988 is found.

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Key concepts: Stock (firearms), Stock market bubble, Economics, Financial economics, Stock market, Bubble, Economic bubble, Monetary economics