Abstract
The upsurge of globalization has made investors cautious towards investing
decisions, and resultantly, the techniques of forecasting and carefully analyzing the
stock markets have emerged. This trend has gained momentum in emerging
economies particularly. One such trend is to overcome the investing risks associated
with formation of rational bubbles. Bubbles are formed when prices of stock inflate
to a very high level, but they ultimately burst. This phenomenon is short lived.
Investors may take advantage of this phenomenon and gain high returns but may
also suffer as the entire investing value declines when the bubble bursts. The present
study tries to identify rational bubbles in the capital markets of emerging economies
of South Asia. The monthly data extends from June 1997 to February 2018 from
Karachi, Bombay, Dhaka and Colombo stock markets and sup-Augmented Dicky
Fuller (SADF) test developed by Phillips and Yu (2011) was estimated to identify the
rational bubbles. The results revealed the presence of rational bubbles. The current
study is of significant nature for facilitation of investors in future making investing
decisions concerning with the formation of rational bubbles.
Mian Sajid Nazir, Javeria Mahmood, Hammad Hassan Mirza, Ishfaq Ahmed, Rizwan Qaisar Danish, Fizza Abbas. (2018) Identification of Rational Bubbles in Emerging Markets of SAARC, Journal of the Research Society of Pakistan, Volume 55, Issue 2.
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