Duration dependence test of rational speculative bubbles: a case study of the Hong Kong stock market

Abstract

This study tests the presence of rational speculative bubbles in the Hong Kong stock market over a sample period from 1993-2008 using the duration dependence test. The duration dependence test shows no evidence of duration dependence, suggesting that the Hong Kong stock market did not exhibit rational speculative bubbles before (1993-1997) and after (1998-2008) the 1997 Asian financial crisis. The results also suggest that the tests are not sensitive to the choice of different models, monthly versus weekly runs of returns and equally- versus value-weighted portfolio in the Hong Kong stock market. The results imply that the stock prices could be a reflection of the market fundamentals.