Rational Bubbles Exist in the G-7 Stock Markets? Threshold Cointegration Approach

The purpose of this paper is to investigate whether rational bubbles exist in the G-7 stock markets during the period from January 1980 to July 2008 using the threshold cointegration approach with asymmetric adjustments advanced by Enders and Siklos (2001). The results of threshold cointegration technique reveal that rational bubbles are nonexistent in both Canadian and Japanese stock markets during the period from January 1980 to July 2008. Further, the positive deviations from values are eliminated quicker than negative deviations and the price (not the dividend) is responsible for most of the adjustments.