Using 20 years of Australian quarterly data, this paper decomposes Australian share prices into their fundamental and speculative components. To do this we derive the fundamental share-price–output ratio and, hence, the fundamental share-price from a restricted vector-autoregressive model relating the aggregate real share-price index to real output. Our estimations use different assumptions regarding shareholders’ required real rate of return. Our results imply that a significant speculative component exists in share prices (around 10% in mid-2000) and that share-price over/undervaluation has a life-span of around 4 years.
|Journal||Journal of Economic & Business|
|Publication status||Published - 2003|