A Test for Speculative Bubbles in the Sterling-Dollar Exchange Rate: 1981-84

George W. Evans

127 citations0/0 files storedAmerican Economic Review

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Financial Markets and Investment Strategies Monetary Policy and Economic Impact Economic theories and models

Abstract

The U.S. dollar price of the U.K. pound sterling is tested for a speculative bubble, defined as a period with a nonzero median in excessreturns. A nonparametric procedure is developed, which controls for data mining over the period of flexible exchange rates, and finds a negative bubble in the excess return to holding sterling rather than dollar assets during the period 1981-84. Possible interpretations arebootstrap equilibria (rational bubbles), nonsym-metric fundamentals, and nonrational expectations. Copyright 1986 by American Economic Association.

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References

1976Expectations and Exchange Rate Dynamics 1980Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?1979Manias, Panics, and Crashes: A History of Financial Crises 1980Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis 1980Market Fundamentals versus Price-Level Bubbles: The First Tests 1979Speculative bubbles, crashes and rational expectations 1981On Non-Uniqueness in Rational Expectations Models: An Attempt at Perspective 2016Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria

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2002The Effectiveness of Fiscal Policy in Stimulating Economic Activity 1991Are Stock Returns Predictable? A Test Using Markov Chains 2013A Mathematical Theory of Financial Bubbles 1998Are there rational speculative bubbles in Asian stock markets?2008A case study of speculative financial bubbles in the South African stock market 2003–2006

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