Abstract:
The objective of this thesis is to investigate the presence of bubbles in Stock Exchange of Thailand (SET) by focusing on abnormal continuously compounded real monthly returns for value-weighted portfolios of all stocks from April 1985 to February 2000 excluding the stock market crash period during July 1997 to December 1998. Rational speculaive bubbles allow stock prices to deviate from their fundamental value without assuming irrational investors. Although investors realize that prices exceed fundamental values, they believe there is a good probability that the bubble will continue to expand and yield a high return. A typical characteristic of bubbles is a long run-up in price and followed by a crash. To study the presence of bubble in the Stock Exchange of Thailand (SET), the empirical study is constructed by employing the model called "Duration Dependence" which proposed by Grant McQueen and Steven Thorly (1994). Duration dependence test is derived from the rational speculative bubble model stating that the presence of bubbles implies positive duration dependence in the run of abnormal returns. Specifically, the probability of observing an end to a run of abnormal returns declines with the length of the run. According to the methodology, abnormal returns are divided into positive and negative ones. Then, the test of duration dependence is employed to investigate the bubbles for the runs of both positive and negative abnormal returns separately. Contrary to the general belief, the study does not support the bubble argument in Thailand stock market during the period of study. In particular, the duration dependence model cannot detect the existence of bubble in the market. Therefore, it can be concluded that even at the bull market one from 1985 to 1997, there is no sign of bubble at least from the result of this study.
