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We tested for evidence of stock price bubbles in the Malaysian stock market from 1978 to 2004. Four different tests were used namely excess volatility tests, unit root/co-integration tests, duration dependence tests, and the intrinsic bubbles model. All four tests indicate that during the sample period, there was evidence of stock price bubbles. All tests results conform to the theoretical literature on asset price bubbles except for the results on the intrinsic bubbles model, which concludes that Malaysian investors under react to information on dividends. We find this result hardly surprising as anecdotal evidence does indicate that Malaysian investors place more importance on capital gains as compared to dividends. Although we do not go into a debate on whether authorities should be prick the bubble to stem its negative effects, we argue that transparent information dissemination will ensure that the stock market becomes more efficient in pricing stocks.

Speculative bubbles have been occurring periodically in local or global real-estate markets and are considered a potential cause of economic crises. In this context, the detection of explosive behaviors in the financial market and the implementation of early warning diagnosis tests are of critical importance. The recent increase in Brazilian housing prices has risen concerns that the Brazilian economy may have a speculative housing bubble. In the present chapter, we employ a recently proposed recursive unit root test in order to identify possible speculative bubbles in data from the Brazilian residential real-estate market. The empirical results show evidence for speculative price bubbles both in Rio de Janeiro and São Paulo, the two main Brazilian cities.

This chapter presents several approaches for identifying and dating the speculative bubble on real estate market. Using the real estate price index (IPAI), statistical and structural approaches were combined in order to detect the existence of a bubble on the Moroccan real estate market. The results obtained affirm that the Moroccan real estate market experienced a speculative bubble during the period 2006–2008 explained mainly by the boom of credit during the same period. The use of the Markov switching model affirmed that the speculative bubble on Morocco is cyclic and consequently corroborates the critic formulated by Evans (1991) concerning the traditional approaches for the detection of financial bubbles. Thus, the analysis of the series of the bubble, extracted using the Kalman filter, affirms the existence of two regimes, namely an explosive regime and a normal regime. The first regime describes the periods of explosion of the bubble and lasts for about 9 quarters, while the second, lasting for 14 quarters, describes the periods of return to the average cycle.

This chapter investigates empirically the existence of periodically collapsing bubbles in the Asian emerging stock markets using the Enders–Siklos (2001) momentum threshold autoregressive model. As explained in Bohl (2003), this non-linear time series technique can be used to analyze bubble driven run-ups in stock prices followed by a crash in a non-cointegration framework with asymmetric adjustment. This technique offers a more potent insight in the stock prices behavior than can possibly be obtained using conventional non-cointegration tests. The empirical findings for 10 Asian emerging stock markets from 1993 to 2005 refute the bubble hypothesis.

This article identifies the institutional factors behind both the emergence of a highly vulnerable financial system and the housing bubble that devastated it. The underlying premise is that the financial crisis was a market failure embedded in and caused by an institutional one. The failing institutions were academic, political and regulatory. The article shows how these institutions were fatally undermined, suggesting limits to the rationalization of finance capitalism. The perspective on financial crisis developed here recognizes the pressing need for reform of the financial markets, and also recommends institutional reforms as critical protections against future system failure.

Expectations play a crucial role in finance, macroeconomics, monetary economics, and fiscal policy. In the last decade a rapidly increasing number of laboratory experiments have been performed to study individual expectation formation, the interactions of individual forecasting rules, and the aggregate macro behavior they co-create. The aim of this article is to provide a comprehensive literature survey on laboratory experiments on expectations in macroeconomics and finance. In particular, we discuss the extent to which expectations are rational or may be described by simple forecasting heuristics, at the individual as well as the aggregate level.