Tests for an end-of-sample bubble in financial time series

Sam Astill, David Harvey, Stephen Leybourne () and Robert Taylor

Discussion Papers from University of Nottingham, Granger Centre for Time Series Econometrics

Abstract: In this paper we examine the issue of detecting explosive behaviour in economic and financial time series when an explosive episode is both ongoing at the end of the sample, and of finite length. We propose a testing strategy based on the sub-sampling methods of Andrews (2003), in which a suitable test statistic is calculated on a finite number of end-of-sample observations, with a critical value obtained using sub-sample test statistsics calculated on the remaining observations. This approach also has the practical advantage that, by virtue of how the critical values are obtained, it can deliver tests which are robust to, among other things, conditional heteroskedasticity and serial correlation in the driving shocks. We also explore modifications of the raw statistics to account for unconditional heteroskedasticity using studentisation and a White-type correction. We evaluate the finite sample size and power properties of our proposed procedures, and find that they offer promising levels of power, suggesting the possibility for earlier detection of end-of-sample bubble episodes compared to exisitng procedures.

Keywords: Rational bubble; Explosive autoregression; Right-tailed unit root testing: Sub-sampling. (search for similar items in EconPapers)
Date: 2016-02
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (3)

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Journal Article: Tests for an end-of-sample bubble in financial time series (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notgts:16/02

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