Markov-switching Unit Root Test: A study of the Property Price Bubbles in Hong Kong and Seoul

Qin Xiao and Randolph Gee Kwang Tan
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Randolph Gee Kwang Tan: Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore

No 602, Economic Growth Centre Working Paper Series from Nanyang Technological University, School of Social Sciences, Economic Growth Centre

Abstract: Evans (1991) demonstrates that the unit root tests recommended by Hamilton and Whiteman (1985) and Diba and Grossman (1988) will fail to detect periodically collapsing rational bubbles. Hall et al. (1999) however show that the power of this test procedure can be improved by incorporating a Markov-switching state variable. In this paper, we apply both procedures to selected data from Hong Kong and Seoul. Both point to the possible existence of a periodically-collapsing bubble in each price series investigated, with the second procedure more precise on timing the bubble. Our Markovswitching model is validated using a symmetry test and a Wald test.

Keywords: Markov-switching; unit root test; periodically-collapsing bubble; real-estate (search for similar items in EconPapers)
JEL-codes: C12 C52 G12 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2006-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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