Aggregate rationality in the long-run: some tests on the Belgian stock markets

This article aims at highlighting the relevance of the Efficient Market Hypothesis versus rational bubbles hypotheses in order to account for the Belgian financial history since 1837. We use unit roots and cointegration techniques (following the works of Diba and Grossman [1988] and Dwyer and Hafer [1990]) and apply them to long-run time series of real stock prices and dividends. Our results tend to reject any hypothesis of rational bubbles but show great evidence of cointegration between stock prices and dividends for the 19th century sample ( 1837-1900, yearly). There is no evidence of cointegrafion for the intermediate sample (1958-88, quarterly). As the absence of rational bubbles and the validity of the Efficient Market Hypothesis should imply cointegration, we conclude that the time-invariance of the theory is questionable. (JEL G14).