Detecting Periods of Exuberance: A Look at the Role of Aggregation with an Application to House Prices

Valerie Grossman, Enrique Martínez García () and Efthymios Pavlidis

No 325, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: The recently developed SADF and GSADF unit root tests of Phillips et al. (2011) and Phillips et al. (2015) have become popular in the literature for detecting exuberance in asset prices. In this paper, we examine through simulation experiments the effect of cross-sectional aggregation on the power properties of these tests. The simulation design considered is based on actual housing data for both U.S. metropolitan and international housing markets and thus allows us to draw conclusions for different levels of aggregation. Our findings suggest that aggregation lowers the power of both the SADF and GSADF tests. The effect, however, is much larger for the SADF test. We also provide evidence that tests based on panel data techniques, namely the panel GSADF test recently proposed by Pavlidis et al. (2015), can perform substantially better than univariate tests applied to aggregated series.

JEL-codes: C12 C22 G12 R30 R31 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2017-08-01
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://www.dallasfed.org/~/media/documents/institute/wpapers/2017/0325.pdf Original version (application/pdf)
https://www.dallasfed.org/-/media/documents/institute/wpapers/2017/0325r1.pdf Revised version (application/pdf)

Related works:
Journal Article: Detecting periods of exuberance: A look at the role of aggregation with an application to house prices (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:325

DOI: 10.24149/gwp325r1

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