Analysis of the formation of the price bubble in the financial market: with an emphasis on the price bubble in the insurance industry and the stock market with the Markov-switching approach

This article investigates the formation of price bubbles in the insurance industry index in the Tehran Stock Exchange with the total price index, considering the importance of the price trend and the formation of bubbles in the stock market in order to get a better understanding of the price trend of the insurance industry compared to the total index of Tehran Stock Exchange. The time period studied in this article is from April ۲۰۱۷ to April ۲۰۲۰. The method used here is the Markov switching method. Also, the basis of this study to identify the price bubble is two-regime state-space model of Wu (۱۹۹۵) and Campbell and Shiller (۱۹۸۸), which considers bubble formation in one state and bubble burst in the other. The results show that the trend of price bubble formation in the insurance industry in Tehran Stock Exchange and the total price index of the stock exchange are different and fluctuations in the insurance industry index have been more than fluctuations in the total stock index. Also, based on the results, the number of bubble formation trends related to the insurance industry index is about ۲۶ times and the total index is ۱۹ times. In addition, the bubbles that occur are less compatible with each other, so that studies show that in the period of ۲۰۱۷ to ۲۰۱۸, the total index did not face the formation of bubbles, but the insurance industry index has experienced about ۱۲ bubble formation processes in the same period

Keywords:

Price bubble , Insurance industry , Tehran Stock Exchange