Identification of speculative bubbles using state-space models with Markov-switching

Nael Al-Anaswah and Bernd Wilfling

No 309, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster

Abstract: In this paper we use a state-space model with Markov-switching to detect speculative bubbles in stock-price data. Our two innovations are (1) to adapt this technology to the state-space representation of a well-known present-value stock-price model, and (2) to estimate the model via Kalman-filtering using a plethora of artificial as well as real-world data sets that are known to contain bubble periods. Analyzing the smoothed regime probabilities, we find that our technology is well suited to detecting stock-price bubbles in both types of data sets.

Keywords: Stock market dynamics; Detection of speculative bubbles; Present value models; State-space models with Markov-switching (search for similar items in EconPapers)
JEL-codes: C22 G12 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2009-09
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Identification of speculative bubbles using state-space models with Markov-switching (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:cqe:wpaper:0309

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