Testing for multiple bubbles in bitcoin markets: A generalized sup ADF test
Ran Tao and
Japan and the World Economy, 2018, vol. 46, issue C, 56-63
This study investigates whether bubbles exist in Bitcoin markets and tracks when they will occur and collapse. We apply the generalized sup Augmented Dickey-Fuller test method proposed by Phillips et al. (2013). The results show that there have been four explosive bubbles in China and the U.S. market, primarily occurring during the periods of huge surges in Bitcoin prices. This is consistent with the bubble model improved by Gurkaynak (2008), in which asset price is decomposed into fundamental and bubble components. In particular, exogenous shocks, including foreign or domestic economic events, lead to the origination of bubbles. A serious financial crisis may trigger long-term and large-scale bubbles, whereas relatively short-term bubbles are caused by domestic components. It can be inferred that Bitcoin can be used as a hedge against market-specific risk. Finally, Bitcoin bubbles collapse due to administrative intervention by economic authorities. Therefore, the government should manage public expectations to maintain confidence in authority and reduce speculation behavior to stabilize the asset price and financial market.
Keywords: Bitcoin; Price bubble; Speculation; GSADF (search for similar items in EconPapers)
JEL-codes: G01 G12 C01 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:46:y:2018:i:c:p:56-63
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