Rational Speculative Bubble Size in Gold, Hang Seng, S&P 500 and Nikkei 225 Index during Year 2008 to 2016

Abstract

A rational speculative bubble is a surge in asset prices that exceed its intrinsic value. Rational speculative bubbles are among the ascription which may lead to the collapse of an economic system. Rational speculative bubble cannot be created but it comes into existence when assets started to be traded. Financial rational speculative bubble and burst have negative effect on the economy and markets. Financial rational speculative bubbles are difficult to detect. This study aims to shows the size of rational speculative bubble in four markets, which are gold, Hang Seng, S&P500 and Nikkei 225 during year 2008 to 2016. In this study, generalized Johansen-Ledoit-Sornette model are used to find the size of the rational speculative bubble. Bubble detection is important for both sides of macro-economic decision makers and to the trader. Especially for a trading system that requires detailed knowledge about the time and the stage of the bubble burst.