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Stock Price Bubbles: Identification and the Effects of Monetary Policy
Koza, Oldřich ; Matějů, Jakub (advisor) ; Ryska, Pavel (referee)
This thesis studies bubbles in the U.S. stock market and how they are influenced by monetary policy pursued by the FED. Using Kalman filtering, the log-real price of S&P 500 is decomposed into a market-fundamentals component and a bubble component. The market-fundamentals component depends on the expected future dividends and the required rate of return, while the bubble component is treated as an unobserved state vector in the state-space model. The results suggest that, mainly in recent decades, the bubble has accounted for a substantial portion of S&P 500 price dynamics and might have played a significant role during major bull and bear markets. The innovation of this thesis is that it goes one step further and investigates the effects of monetary policy on both estimated components of S&P 500. For this purpose, the block- restriction VAR model is employed. The findings indicate that the decreasing interest rates have a significant short-term positive effect on the market-fundamentals component but not on the bubble. On the other hand, quantitative easing seems to have a positive effect on the bubble but not on the market-fundamentals component. Finally, the results suggest that the FED has not been successful at distinguishing between stock price movements due to fundamentals or the price misalignment.
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Stock Price Bubbles: Identification and the Effects of Monetary Policy
Koza, Oldřich ; Matějů, Jakub (advisor) ; Ryska, Pavel (referee)
This thesis studies bubbles in the U.S. stock market and how they are influenced by monetary policy pursued by the FED. Using Kalman filtering, the log-real price of S&P 500 is decomposed into a market-fundamentals component and a bubble component. The market-fundamentals component depends on the expected future dividends and the required rate of return, while the bubble component is treated as an unobserved state vector in the state-space model. The results suggest that, mainly in recent decades, the bubble has accounted for a substantial portion of S&P 500 price dynamics and might have played a significant role during major bull and bear markets. The innovation of this thesis is that it goes one step further and investigates the effects of monetary policy on both estimated components of S&P 500. For this purpose, the block- restriction VAR model is employed. The findings indicate that the decreasing interest rates have a significant short-term positive effect on the market-fundamentals component but not on the bubble. On the other hand, quantitative easing seems to have a positive effect on the bubble but not on the market-fundamentals component. Finally, the results suggest that the FED has not been successful at distinguishing between stock price movements due to fundamentals or the price misalignment.
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Behaviour of Stocks on the Prague Stock Exchange During the Financial Crisis: Evidence from Empirical Research
Koza, Oldřich ; Teplý, Petr (advisor) ; Krištoufek, Ladislav (referee)
This work studies the behaviour of the four most traded stocks on the Prague Stock Exchange from January 2007 to July 2010. Its main goal is to describe how the financial crisis influenced the Prague Stock Exchange. Employing standard statistical methods, ARMA, GARCH, and VAR models I examine on daily data the following phenomena: volatility, price jumps, the day of the week effect, validity of the efficient market hypothesis, and information flow between the stocks. The results imply that the financial crisis had stronger impact on the banking sector stocks than on other stocks. The crisis was mainly characterized by rapid growth in volatility and correlation between the stocks. It also influenced the information flow and the day of the week effect. However, the crisis did not trigger growth in the number of extreme price movements, and it did not cause the market to be less information efficient.
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