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Bubbles, Stock Returns, and Duration Dependence

Published online by Cambridge University Press:  06 April 2009

Grant McQueen  and
Steven Thorley
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Abstract

A new testable implication is derived from the rational speculative bubbles model stating that the presence of bubbles implies positive duration dependence in runs of high returns. Specifically, the probability of observing an end to a run of high returns declines with the length of the run. Traditional duration dependence tests are adapted for use with discrete stock runs data and, consistent with the existence of bubbles, evidence of duration dependence in monthly real stock returns is found.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 29 , Issue 3 , September 1994 , pp. 379 - 401
Copyright
Copyright © School of Business Administration, University of Washington 1994

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