Tests of Rational Bubbles Using Cointegration Theory

Kian Guan Lim, Singapore Management University
Kok Fai PHOON, Singapore Management University


This paper provides results of tests of cointegration of stock price and stock dividend payments. Taking into account the problems of nuisance parameters and size distortion in the test statistics used in these tests, we find evidence that stock price and stock dividends are not cointegrated. More specifically, we have not ruled out the presence of rational bubbles. [ABSTRACT FROM AUTHOR]