Improving the accuracy of asset price bubble start and end date estimators

Harvey, David I. and Leybourne, Stephen J. and Sollis, Robert (2016) Improving the accuracy of asset price bubble start and end date estimators. Journal of Empirical Finance, 40 . pp. 121-138. ISSN 1879-1727

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Abstract

Recent research has proposed using recursive right-tailed unit root tests to date the start and end of asset price bubbles. In this paper an alternative approach is proposed that utilises model-based minimum sum of squared residuals estimators combined with Bayesian Information Criterion model selection. Conditional on the presence of a bubble, the dating procedures suggested are shown to offer consistent estimation of the start and end dates of a fixed magnitude bubble, and can also be used to distinguish between different types of bubble process, i.e. a bubble that does or does not end in collapse, or a bubble that is ongoing at the end of the sample. Monte Carlo simulations show that the proposed dating approach out-performs the recursive unit root test methods for dating periods of explosive autoregressive behaviour in finite samples, particularly in terms of accurate identification of a bubble's end point. An empirical application involving Nasdaq stock prices is discussed.

Item Type: Article
RIS ID: https://nottingham-repository.worktribe.com/output/829473
Keywords: Rational bubble; Explosive autoregression; Regime change; Break date estimation
Schools/Departments: University of Nottingham, UK > Faculty of Social Sciences > School of Economics
Identification Number: https://doi.org/10.1016/j.jempfin.2016.11.001
Depositing User: Eprints, Support
Date Deposited: 10 Nov 2016 08:52
Last Modified: 04 May 2020 18:21
URI: http://eprints.nottingham.ac.uk/id/eprint/38633

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