Intrinsic Bubbles in the American Stock Exchange: The case of the S&P 500 Index

Abstract

The aim of this paper is to test the presence of rational intrinsic bubbles in the S&P 500 index. To this effect, we used two econometric techniques. The first technique applies stationarity and cointegration tests to real prices and dividends series. The second technique consists in directly estimating intrinsic bubbles coefficients. Studying a sample of annual real price and dividends indices, observed during the 1871 to 2009 period, we note the presence of a bubble with features consistent with intrinsic bubbles theory.