Do Periodically Collapsing Bubbles In Latin American And Asian Emerging Markets Really Exist?

Abstract

As asset pricing, especially in emerging markets has been of continued interest in finance, this paper contributes by investigating the presence of periodically collapsing bubbles in seven Asian and seven Latin American emerging markets. Although a number of studies, using different approaches have studied presence of bubbles in emerging markets, none have applied the Hall, et al’s (1999) Markov regime switching unit root test procedure to such markets. The major finding of the investigation is that asset prices may not result in periodically collapsing bubbles in most emerging markets. Thus, our findings provide support against the current arguments that emerging capital markets have benefited from increased liquidity rather than improved fundamentals.