Extracting stock-market bubbles from dividend futures

Branger, Nicole; Trede, Mark; Wilfling, Bernd

Zusammenfassung

This study presents a method for decomposing the EuroStoxx50 index into its unobservable bubble and its fundamental component. Based on a unique data set containing the prices of dividend futures from 2011 to 2023, we determine the fundamental value by extrapolating the price curve of dividend claims for long maturities. As a residual, we obtain the trajectory of the bubble. We find that the bubble component averages around 22% of the EuroStoxx50 index in normal times. The bubble is highly sensitive to increasing geopolitical risks and economic uncertainty triggered by the invasion of Ukraine and the COVID19 outbreak. Our econometric analysis indicates that the fitted bubble process is consistent with rational expectations.

Schlüsselwörter
Rational bubbles; Present-value model; Dividend futures; Equity yields; Explosive behavior