Date-stamping multiple bubble regimes

David Harvey, Stephen J. Leybourne and Emily Whitehouse

Journal of Empirical Finance, 2020, vol. 58, issue C, 226-246

Abstract: Identifying the start and end dates of explosive bubble regimes has become a prominent issue in the econometric literature. Recent research has demonstrated the advantage of a model-based minimum sum of squared residuals estimator, combined with Bayesian Information Criterion model selection, over recursive unit root testing methods in providing accurate date estimates for a single explosive regime. However, in the context of multiple bubbles, a large number of models are possible, making such a model-based method unappealing. In this paper, we propose a two-step procedure for dating multiple explosive regimes. First, recursive unit root tests are used to identify a ‘date window’ in which an explosive episode starts and ends. Second, a model-based BIC approach is used to precisely estimate the regime change points within each date window. In addition, our method allows us to distinguish between different types of explosive episode, such as whether or not each explosive regime crashes before reverting back to a unit root process, and date any crash regimes. Monte Carlo simulations highlight the effectiveness of our procedure when compared to existing methods of dating. The value of the new methodology is also demonstrated through an empirical application to housing markets.

Keywords: Explosive autoregression; Break date estimation; Multiple bubbles (search for similar items in EconPapers)
JEL-codes: C13 C22 G14 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927539820300347
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:58:y:2020:i:c:p:226-246

DOI: 10.1016/j.jempfin.2020.06.004

Access Statistics for this article

Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

More articles in Journal of Empirical Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().