Sup-ADF-style bubble detection methods under test

Konferenzbeitrag

In this paper we analyze the performance of supremum augmented Dickey-Fuller (SADF), generalized SADF (GSADF), and backward SADF (BSADF) tests, as introduced by Phillips et al. (International Economic Review 56:1043-1078, 2015) for detecting and date-stamping financial bubbles. In Monte Carlo simulations, we show that the SADF and GSADF tests may reveal substantial size distortions under typical financial-market characteristics (like the empirically well-documented leverage effect). We consider the rational bubble specification suggested by Rotermann and Wiling (Applied Economics Letters 25:1091-1096, 2018) that is able to generate realistic stock-price dynamics (in terms of level trajectories and volatility paths). Simulating stock-price trajectories that contain these parametric bubbles, we demonstrate that the SADF and GSADF tests can have extremely low power under a wide range of bubble-parameter constellations. In an empirical analysis, we use NASDAQ data covering a time-span of 45 years and find that the outcomes of the bubble date-stamping procedure (based on the BSADF test) are sensitive to the data-frequency chosen by the econometrician.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2019: 30 Jahre Mauerfall - Demokratie und Marktwirtschaft - Session: Econometrics ; No. G08-V4

Classification and Topics

• Classification: Wirtschaft ; Statistical Simulation Methods: General ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Financial Econometrics ; International Financial Markets
• Subject: Stock markets ; present-value model ; rational bubble ; explosiveness ; SADF and GSADF tests ; bubble detection ; date-stamping

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Monschang, Verena ; Wilfling, Bernd
• Event: Veröffentlichung
• (who): ZBW - Leibniz-Informationszentrum Wirtschaft
• (where): Kiel, Hamburg
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/203568
• Last update: 10.03.2025, 11:42 AM CET