How to identify the different phases of stock market bubbles statistically?

Lajos Horvath, Hemei Li and Zhenya Liu

Finance Research Letters, 2022, vol. 46, issue PA

Abstract: Eugene Fama once mentioned in 2016 that people have not come up with ways of identifying bubbles statistically. This paper presents the nonparametric change-point method to identify different stages of stock bubbles, and we derive its asymptotic distribution under the null hypothesis. By simulation, we obtain the corresponding critical value. In the empirical analysis, we employ this test and binary segmentation method to the 1990s Nasdaq bubble and get the same result as Phillips et al. (2011). We also apply this test to the S&P 500 index, the Shanghai stock index, the Nikkei 225 index, the FTSE 100 index, and the CAC 40 index respectively, and successfully identify the bubbles’ different phases in each stock market.

Keywords: Change-point analysis; Weak-dependence assumption; Phases of stock market bubbles (search for similar items in EconPapers)
JEL-codes: C12 G10 G15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pa:s154461232100369x

DOI: 10.1016/j.frl.2021.102366

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