Improving the accuracy of asset price bubble start and end date estimators
Stephen Leybourne () and
Journal of Empirical Finance, 2017, vol. 40, issue C, 121-138
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.
Keywords: Rational bubble; Explosive autoregression; Regime change; Break date estimation (search for similar items in EconPapers)
JEL-codes: C22 C13 G14 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:40:y:2017:i:c:p:121-138
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