Detection of Rational Speculative Bubbles in the Malaysian Stock Market

The general purpose of the study is to investigate the existence of rational speculative bubbles in the Malaysian stock market. A bubble is defined as the asset price movement that is unexplainable by the fundamental (Garber, 1990). Meanwhile, rational speculative bubbles can be defined as an att...

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Main Author:	Mokhtar, Suraya Hanim
Format:	Thesis
Language:	English English
Published:	2006
Subjects:	Stock Market Bubble 1995-2000. Stock exchanges - Malaysia.
Online Access:	http://psasir.upm.edu.my/id/eprint/6872/1/GSM_2006_1.pdf
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id	my-upm-ir.6872
record_format	uketd_dc
spelling	my-upm-ir.68722023-11-14T04:23:31Z Detection of Rational Speculative Bubbles in the Malaysian Stock Market 2006-04 Mokhtar, Suraya Hanim The general purpose of the study is to investigate the existence of rational speculative bubbles in the Malaysian stock market. A bubble is defined as the asset price movement that is unexplainable by the fundamental (Garber, 1990). Meanwhile, rational speculative bubbles can be defined as an attempt to identify the behavior of investors who act irrationally (Cuthbertson, 1996). Specifically, the study aims to detect the rational speculative bubbles over the period for before (1 994- 1996), during (1 997-1 998) and after the Asian financial crisis (1999-2003). This study provides a modest attempt to investigate the price behavior of stocks fiom a behavioral finance perspective. In theory, the bubble is a theoretically appealing; however the fundamental fails to identify the growth or size of the share prices. This study used abnormal monthly real return of Kuala Lumpur Composite Index and Sectoral Indices (Finance Index, Consumer Product Index, Property Index, Trading and Services Index, Plantation Index, Construction Index and Industrial Product Index) from 1994 until 2003. Statistical analysis used in this study is Duration Dependence Test using the Log Logistic Hazard Model and the Weibull Hazard Model. The empirical findings of the study for both models: (1) Log Logistic Hazard Model and: (2) Weibull Hazard Model revealed the existence of rational speculative bubbles in the Malaysian stock market for before (1994-1996) and after (1999-2003) the Asian financial crisis 1997. In general, the pattern of the bubble behavior for before and after the Asian financial crisis 1997 on Composite Index and Sectoral Indices replicate similar findings in which the bubbles' sizes are huge in 1995. The practical issue suggests from this scenario, the policy makers have to react approximately two years before crisis. Furthermore, the findings illustrate that the bubbles developed over time and explode during crisis. Moreover, investor tends to overact or exaggerate and implies that price movement contains bubbles, apart from the normal white noise. This study presents a number of practical implications to academicians, investors and most importantly to policy makers. Prior to the investigation, there is no published evidence on the detection of rational speculative bubble in the Malaysian stock market especially for the year of 1994 until 2003, therefore this study provides a significant contribution to the body of knowledge particularly in emerging market. The existence of rational speculative bubble in the market lead to better decisions for investors and policy makers on how to minimize risk subsequently, as time goes, market efficiency improves. Stock Market Bubble, 1995-2000. Stock exchanges - Malaysia. 2006-04 Thesis http://psasir.upm.edu.my/id/eprint/6872/ http://psasir.upm.edu.my/id/eprint/6872/1/GSM_2006_1.pdf text en public masters Universiti Putra Malaysia Stock Market Bubble, 1995-2000. Stock exchanges - Malaysia. Graduate School of Management Md. Nassir, Annuar English
institution	Universiti Putra Malaysia
collection	PSAS Institutional Repository
language	English English
advisor	Md. Nassir, Annuar
topic	Stock Market Bubble 1995-2000. Stock exchanges - Malaysia.
spellingShingle	Stock Market Bubble 1995-2000. Stock exchanges - Malaysia. Mokhtar, Suraya Hanim Detection of Rational Speculative Bubbles in the Malaysian Stock Market
description	The general purpose of the study is to investigate the existence of rational speculative bubbles in the Malaysian stock market. A bubble is defined as the asset price movement that is unexplainable by the fundamental (Garber, 1990). Meanwhile, rational speculative bubbles can be defined as an attempt to identify the behavior of investors who act irrationally (Cuthbertson, 1996). Specifically, the study aims to detect the rational speculative bubbles over the period for before (1 994- 1996), during (1 997-1 998) and after the Asian financial crisis (1999-2003). This study provides a modest attempt to investigate the price behavior of stocks fiom a behavioral finance perspective. In theory, the bubble is a theoretically appealing; however the fundamental fails to identify the growth or size of the share prices. This study used abnormal monthly real return of Kuala Lumpur Composite Index and Sectoral Indices (Finance Index, Consumer Product Index, Property Index, Trading and Services Index, Plantation Index, Construction Index and Industrial Product Index) from 1994 until 2003. Statistical analysis used in this study is Duration Dependence Test using the Log Logistic Hazard Model and the Weibull Hazard Model. The empirical findings of the study for both models: (1) Log Logistic Hazard Model and: (2) Weibull Hazard Model revealed the existence of rational speculative bubbles in the Malaysian stock market for before (1994-1996) and after (1999-2003) the Asian financial crisis 1997. In general, the pattern of the bubble behavior for before and after the Asian financial crisis 1997 on Composite Index and Sectoral Indices replicate similar findings in which the bubbles' sizes are huge in 1995. The practical issue suggests from this scenario, the policy makers have to react approximately two years before crisis. Furthermore, the findings illustrate that the bubbles developed over time and explode during crisis. Moreover, investor tends to overact or exaggerate and implies that price movement contains bubbles, apart from the normal white noise. This study presents a number of practical implications to academicians, investors and most importantly to policy makers. Prior to the investigation, there is no published evidence on the detection of rational speculative bubble in the Malaysian stock market especially for the year of 1994 until 2003, therefore this study provides a significant contribution to the body of knowledge particularly in emerging market. The existence of rational speculative bubble in the market lead to better decisions for investors and policy makers on how to minimize risk subsequently, as time goes, market efficiency improves.
format	Thesis
qualification_level	Master's degree
author	Mokhtar, Suraya Hanim
author_facet	Mokhtar, Suraya Hanim
author_sort	Mokhtar, Suraya Hanim
title	Detection of Rational Speculative Bubbles in the Malaysian Stock Market
title_short	Detection of Rational Speculative Bubbles in the Malaysian Stock Market
title_full	Detection of Rational Speculative Bubbles in the Malaysian Stock Market
title_fullStr	Detection of Rational Speculative Bubbles in the Malaysian Stock Market
title_full_unstemmed	Detection of Rational Speculative Bubbles in the Malaysian Stock Market
title_sort	detection of rational speculative bubbles in the malaysian stock market
granting_institution	Universiti Putra Malaysia
granting_department	Graduate School of Management
publishDate	2006
url	http://psasir.upm.edu.my/id/eprint/6872/1/GSM_2006_1.pdf
_version_	1794018689572405248

Detection of Rational Speculative Bubbles in the Malaysian Stock Market

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