How big is the speculative component in Australian Share prices?

A. Black, P. Fraser, Nicolaas Groenewold

Research output: Contribution to journalArticle

7 Citations (Scopus)

Abstract

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.
Original languageEnglish
Pages (from-to)177-195
JournalJournal of Economic & Business
Volume55
Issue number2
Publication statusPublished - 2003

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