Economic bubble: is the stock market too volatile to be regarded as efficient ?

Details

Supervisors

Johnen, Johannes

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques

Abstract

We are primarily interested on how speculative bubble is formed. We know that it is materialized through excessive market prices movement, also known as excessive volatility. But, we need first to understand how market prices are generated according to the different theories that covers the literature. The efficient market theory is the most known but there is also alterantive theories such as rational bubble and the behavioral literature, which focuses on irrational bubbles. Hence, we are interested to know whether the German stock market is too volatile according to the efficient market theory. Once it is deemed too volatile, we maybe infer a speculative bubble for that market. We test the market by resorting to variance-bound test based on the efficient market present value model. Once we obtain our results, we also discuss the robustness of its methodology to deduce excessive volatility, and eventually detect bubbles.