Why do speculative bubbles gather steam? Some international evidence

Abstract

We combined tests for speculative bubbles in stock markets with a cross-country regression framework to analyse whether economic and institutional variables can be identified that make speculative bubbles in stock markets more likely to occur. The list of variables that we found to have a significant effect on the probability that a speculative bubble arises includes an index of shareholder rights (with a negative sign), the share of assets of foreign-owned banks in total banking assets (with a positive sign) and the ratio of gross private saving to gross private disposable income (with a positive sign).

Keywords:

• speculative bubbles
• stock markets

JEL Classification:

• C32
• E32
• E44
• G12

Acknowledgements

Part of this article was written during a visit of Christian Pierdzioch at the Instituto Tecnologico y de Estudios Superiores de Monterrey (ITESM). The hospitality of the ITESM is gratefully acknowledged.