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Analysis of irrational exuberance : an empirical study of excess market volatility based on two german automotive stocks

  • The paper tests the German stock market for excess volatility and stock price overvaluation with regard to the simple efficient markets model and the cyclically adjusted price-earnings ratio. Long-term historical stock market data of 49 years are used to calculate the detrended real price and ex-post value and data of 39 years to compute the cyclically adjusted price-earnings ratio, both from the sample of two German automotive stocks. The empirical evidence provided by the analysis points to excess market volatility and confirms the theory of overvalued stocks, which is linked to the bubble theory. This indicates that price fluctuations cannot be justified only by changes in fundamental values as claimed by the Efficient Market Hypothesis. The German stock market therefore shows inefficiency.

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Author:India Gaiser
Advisor:Marc Peter Radke
Document Type:Bachelor Thesis
Year of Completion:2022
Granting Institution:Hochschule Furtwangen
Date of final exam:2022/07/29
Release Date:2022/07/28
Tag:Behavioral finance; Cyclically adjusted price-earnings ratio; Efficient market hypothesis; Excess volatility
Page Number:69
Degree Program:IBM - International Business Management
Functional area:Finance & Accounting
Licence (German):License LogoUrheberrechtlich geschützt