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ASSESSING PRE-CRISIS FUNDAMENTALS IN SELECTED ASIAN STOCK MARKETS

Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Nanyang Avenue, Singapore 639798, Singapore

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G. K. RANDOLPH TAN

Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Nanyang Avenue, Singapore 639798, Singapore

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, and

SHAHIDUR RAHMAN

Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Nanyang Avenue, Singapore 639798, Singapore

Corresponding author.

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https://doi.org/10.1142/S0217590805001962Cited by:3 (Source: Crossref)

Abstract

In the folklore of emerging markets, there is a popular belief that bubbles are inevitable. In this paper, our objective is to estimate a state-space model for rational bubbles in selected Asian economies with the aid of the Kalman Filter. For each economy, we derive a possible picture of the bubble formation process that is implied by the state-space formulation. The estimation is based on the rational valuation formula for stock prices. Our results provide a possible way of defining the presence of rational bubbles in the stock markets of Taiwan, Singapore, Korea, and Malaysia.

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