Bubbles in health care: Evidence from the U.S., U.K., and German stock markets

• We apply the GSADF test to locate multiple bubbles in the health caresector (HCS).
• The dates of bubbles corresponded to the dotcom and pre-subprime crisis periods.
• Panel switching model is used to see what factors influence stock returns in HCS.
• The local stock market returns determine stock returns from health care sector.

This study applies the GSADF test to locate multiple bubbles in the health care sector (HCS) of the U.S., U.K., and German stock markets. The panel switching model is estimated to evaluate to what extent money supply, economic growth, and stock returns from local markets influence stock returns from the HCS. Our empirical model not only identifies one bubble (two bubbles) in the HCS of the U.S. and German stock markets (U.K. stock market) but also suggests that the local stock market returns play an important role in determining stock returns from the HCS in both bubble and normal regimes.