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Journal of Risk and Financial Management is published by MDPI from Volume 6 Issue 1 (2013). Articles in this Issue were published by another publisher in Open Access under a CC-BY (or CC-BY-NC-ND) licence. Articles are hosted by MDPI on mdpi.com as a courtesy and upon agreement with Prof. Dr. Raymond A. K. Cox and Prof. Dr. Alan Wong.
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J. Risk Financial Manag. 2011, 4(1), 97-132; https://doi.org/10.3390/jrfm4010097

Periodically Collapsing Bubbles in Stock Prices Cointegrated with Broad Dividends and Macroeconomic Factors

1
Florida International University, USA
2
Department of Economics, University Park DM 320A, Florida International University, Miami, FL 33199, USA
*
Author to whom correspondence should be addressed.
Published: 31 December 2011
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Abstract

We study fluctuations in stock prices using a framework derived from the present value model augmented with a macroeconomic factor. The fundamental value is derived as the expected present discounted value of broad dividends that include, in addition to traditional cash dividends, other payouts to shareholders. A stochastic discount factor motivated by the consumption-based asset pricing model is utilized. A single macroeconomic factor, namely the output gap determines the non-fundamental component of stock prices. A resulting trivariate Vector Autoregression (TVAR) model of stock prices, broad dividends, and the output gap shows evidence of cointegration in the DJIA and S&P 500 index data. Nonetheless, a sup augmented Dickey-Fuller test reveals existence of periodically collapsing bubbles in S&P 500 data during the late 1990s. View Full-Text
Keywords: stock prices; broad dividends; macro factors; cointegration; periodically collapsing bubbles stock prices; broad dividends; macro factors; cointegration; periodically collapsing bubbles
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Fu, M.; Bidarkota, P.V. Periodically Collapsing Bubbles in Stock Prices Cointegrated with Broad Dividends and Macroeconomic Factors. J. Risk Financial Manag. 2011, 4, 97-132.

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