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In‐Sample and Out‐of‐Sample Prediction of stock Market Bubbles: Cross‐Sectional Evidence
Author(s) -
Herwartz Helmut,
Kholodilin Konstantin A.
Publication year - 2014
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.2269
Subject(s) - economics , econometrics , sample (material) , stock market , valuation (finance) , logit , stock (firearms) , financial economics , finance , mechanical engineering , paleontology , chemistry , chromatography , horse , engineering , biology
We evaluate the informational content of ex post and ex ante predictors of periods of excess stock (market) valuation. For a cross‐section comprising 10 OECD economies and a time span of at most 40 years, alternative binary chronologies of price bubble periods are determined. Using these chronologies as dependent processes and a set of macroeconomic and financial variables as explanatory variables, panel logit regressions are carried out. With model estimates at hand, both in‐sample and out‐of‐sample forecasts are made. The set of 13 potential predictors is classified in measures of macroeconomic or monetary performance, stock market characteristics and descriptors of capital valuation. The latter, in particular the price‐to‐book ratio, turn out to have strongest in‐sample and out‐of‐sample explanatory content for the emergence of price bubbles. Copyright © 2013 John Wiley & Sons, Ltd.