International Journal of Nonlinear Analysis and Applications
Analysis of the formation of the price bubble in the financial market: with an emphasis on the price bubble in the insurance industry and the stock market with the Markov-switching approach
Document Type : Research Paper
Authors
1 Assistant Professor, Faculty Member, Allameh Tabataba,i University, Tehran, Iran
2 Associate Professor, Faculty Member, Allameh Tabataba, i University, Tehran, Iran
3 PhD Student in Financial Management, Allameh Tabataba, i University, Tehran, Iran
Abstract
This article investigates the formation of price bubbles in the insurance industry index in the Tehran Stock Exchange with the total price index, considering the importance of the price trend and the formation of bubbles in the stock market in order to get a better understanding of the price trend of the insurance industry compared to the total index of Tehran Stock Exchange. The time period studied in this article is from April 2017 to April 2020. The method used here is the Markov switching method. Also, the basis of this study to identify the price bubble is two-regime state-space model of Wu (1995) and Campbell and Shiller (1988), which considers bubble formation in one state and bubble burst in the other. The results show that the trend of price bubble formation in the insurance industry in Tehran Stock Exchange and the total price index of the stock exchange are different and fluctuations in the insurance industry index have been more than fluctuations in the total stock index. Also, based on the results, the number of bubble formation trends related to the insurance industry index is about 26 times and the total index is 19 times. In addition, the bubbles that occur are less compatible with each other, so that studies show that in the period of 2017 to 2018, the total index did not face the formation of bubbles, but the insurance industry index has experienced about 12 bubble formation processes in the same period
Keywords
price bubbles in the Tehran Stock Exchange. Stock Exchange Quarterly, 18: 75-92.
[2] Samani, H., Ali Danesh, H., and Nazari, F. (2017). Corporate Social Responsibility and the Price Bubble: A
Study of Companies Listed on the Tehran Stock Exchange. 33: 1-16.
[3] Asadi, G.H., Hamidi Zadeh, M.R., and Soltani, A. (2006). Study of stock price bubbles in Tehran Stock Exchange
according to the size of the company and the type of industry. Quarterly Journal of Accounting Studies, 14: 39-71.
[4] Biabani Khameneh, K., Khazaei, S., and Afsharian, A. (2016). Bubble Test and Explosive Behavior in the Iranian
Stock Market. Quarterly Journal of Securities Analysis, 29: 111-125.
[5] Campbell, J.Y., Shiller, R.J. (1988a). The Dividend-Price Ratio and the Expectations of Future Dividends and
Discount Factors. Review of Financial Studies 1(3), 195-228.
[6] Campbell, J.Y., Shiller, R.J. (1988b). Stock Prices, Earnings and Expected Dividends. Journal of Finance 43(3),
661-676.[7] Chen, A. S., Cheng, L. Y., & Cheng, K. F. (2009). Intrinsic bubbles and Granger causality in the S&P 500:
Evidence from long-term data. Journal of Banking & Finance, 33(12), 2275-2281.
[8] Cuthbertson, K., & Nitzsche, D. (2005). Quantitative financial economics: stocks, bonds and foreign exchange.
John Wiley & Sons.
[9] Dow, J., & Han, J. (2015). Contractual incompleteness, limited liability and asset price bubbles. Journal of
Financial Economics, 116(2), 383-409.
[10] Ebrahimi Sarv Oulia, M.H., Fallah Shams Laialestani, M., and Azarang, Sh. (2013). Study of Factors Affecting the
Price Bubble in Tehran Stock Exchange. Quarterly Journal of Financial Engineering and Securities Management,
17: 107-115.
[11] Escobari, D., Garcia, S., & Mellado, C. (2017). Identifying bubbles in Latin American equity markets: PhillipsPerron-based tests and linkages. Emerging Markets Review, 33, 90-101.
[12] Gomez-Gonzalez, J.E., J.N. Ojeda-Joya, C. Rey-Guerra & N. Sicard. (2013). Testing for Bubbles in Housing
Markets: New Results Using a New Method. Federal Reserve Bank of Dallas, Working Paper, No. 164.
[13] Greenspan, A. (2004). Risk and Uncertainty in Monetary Policy. Remarks at the Meetings of the American
Economic Association, San Diego, California, January 3rd.
[14] Jafari Samimi, A. and Balonejad, R. (2015). Testing the Existence of Multiple Price Bubbles in the Stock Market:
Improving the General Superior Dicky-Fuller Method. Quarterly Journal of Economic Modeling Research, 21:
7-33.
[15] Kim, C.-J., Nelson, C.R. (1999). State Space Models with Regime Switching. MIT Press, Cambridge.
[16] Klotz, P., Lin, T. C., & Hsu, S. H. (2016). Modeling property bubble dynamics in Greece, Ireland, Portugal and
Spain.Journal of European Real estate research, 9(1), 52-75.
[17] Komaromi, G. (2004). Was There a Stock Market Bubble in Hungary? Competitio, 3(1): 169-178.
[18] Koustas, Z., & Serletis, A. (2005). Rational bubbles or persistent deviations from market fundamentals?. Journal
of Banking & Finance, 29(10), 2523-2539.
[19] Madelat, K. (2002). Investigating the existence of a price bubble in the Tehran Stock Exchange in recent years.
Economic Research Collection, 2: 1-24.
[20] Miller, J. I., & Ratti, R. A. (2009). Crude oil and stock markets: Stability, instability, and bubbles. Energy
Economics, 31(4), 559-568.
[21] Narayan, P. K., Mishra, S., Sharma, S., & Liu, R. (2013). Determinants of stock price bubbles. Economic
Modelling, 35, 661-667.
[22] Nunes, M., & Da Silva, S. (2007). Rational bubbles in emerging stockmarkets.
[23] Palshikar, G. K., & Apte, M. M. (2008). Collusion set detection using graph clustering. Data Mining and Knowledge Discovery, 16, 135–164.
[24] Qin, X. I. A. O., & Tan, G. K. R. (2006). Markov-switching unit root tests: a study of property price bubbles in
Hong Kong and Seoul. In The 35th Australian conference of economists (ACE).
[25] Qin, X. I. A. O., & Tan, G. K. R. (2006). Markov-switching unit root tests: a study of property price bubbles in
Hong Kong and Seoul. In The 35th Australian conference of economists (ACE).
[26] Serletis, A., & Koustas, Z. (2004). Rational Bubbles or Persistent Deviations from Market Fundamentals?.
[27] Vakilifard, H.R., Talebnia, G., and Kiani, M. (2010). Study of the relationship between free float stocks and
creating a price bubble in companies listed on the Tehran Stock Exchange. Journal of Financial Engineering and
Portfolio Management, 4: 67-87.
[28] Wu, Y. (1995). Are there rational bubbles in foreign exchange markets? Evidence from an alternative test.
Journal of International Money and Finance 14, 27-46.
[29] Wu, Y. (1995). Are there rational bubbles in foreign exchange markets? Evidence from an alternative test.
Journal of International Money and Finance 14, 27-46.
[30] Wu, Y. (1997). Rational Bubbles in the Stock Market: Accounting for the U.S. Stock-Price Volatility. Economic
Inquiry 35, 309-319.
[31] Wu, Y. (1997). Rational Bubbles in the Stock Market: Accounting for the U.S. Stock-Price Volatility. Economic
Inquiry 35, 309-319.
)
Volume 12, Special Issue
December 2021Pages 1-14
- Receive Date: 27 February 2020
- Revise Date: 13 August 2020
- Accept Date: 27 December 2020