“…Investors believe that potential higher positive excess returns will compensate them for the increased risks that the continuing price appreciation ends, or the bubble collapses. 2 Examples of parametric tests include variance ratio tests (e.g., Tauchen and Pittis, 1983;Kalyvitis and Pittis, 1994;Guimaraes-Filho, 1999;and Chang, 2004), volatility tests (e.g., Liu and He, 1991;Alexander, 1995;Chang, 2004;and Karras et al, 2005), and forward-looking techniques (e.g., Elwood et al, 1999;Puri et al, 2002). While these tests do not require a prior specification of the underlying exchange rate determination process, the very nature of unit root and cointegration tests do (e.g., Woo, 1987;MacDonald and Taylor, 1994;van Norden, 1996;Lajaunie and Naka, 1997;Oh, 1999;Francis et al, 2001;Chowdhury, 2004;Davrakadis, 2005;Frommel et al, 2005).…”