Recursive right-tailed unit root tests for an explosive asset price bubble
In this article, we compare the local asymptotic and finite sample power of two recently proposed recursive right-tailed Dickey–Fuller-type tests for an explosive rational bubble in asset prices. It is shown that the power of the two tests can differ substantially depending on the location of the ex...
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Published: |
Oxford University Press
2015
|
| Subjects: | |
| Online Access: | https://eprints.nottingham.ac.uk/32667/ |
| _version_ | 1848794463125635072 |
|---|---|
| author | Harvey, David I. Leybourne, Stephen J. Sollis, Robert |
| author_facet | Harvey, David I. Leybourne, Stephen J. Sollis, Robert |
| author_sort | Harvey, David I. |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | In this article, we compare the local asymptotic and finite sample power of two recently proposed recursive right-tailed Dickey–Fuller-type tests for an explosive rational bubble in asset prices. It is shown that the power of the two tests can differ substantially depending on the location of the explosive regime, and whether such a regime ends in collapse. Since this information is typically unknown to the practitioner, we propose a union of rejections strategy that combines inference from the two individual tests. We find that, for a given specification of the explosive regime, the union of rejections strategy always attains power close to the better of the individual tests considered. An empirical illustration using the Nasdaq composite price index is also provided. |
| first_indexed | 2025-11-14T19:16:35Z |
| format | Article |
| id | nottingham-32667 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T19:16:35Z |
| publishDate | 2015 |
| publisher | Oxford University Press |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-326672020-05-04T20:11:00Z https://eprints.nottingham.ac.uk/32667/ Recursive right-tailed unit root tests for an explosive asset price bubble Harvey, David I. Leybourne, Stephen J. Sollis, Robert In this article, we compare the local asymptotic and finite sample power of two recently proposed recursive right-tailed Dickey–Fuller-type tests for an explosive rational bubble in asset prices. It is shown that the power of the two tests can differ substantially depending on the location of the explosive regime, and whether such a regime ends in collapse. Since this information is typically unknown to the practitioner, we propose a union of rejections strategy that combines inference from the two individual tests. We find that, for a given specification of the explosive regime, the union of rejections strategy always attains power close to the better of the individual tests considered. An empirical illustration using the Nasdaq composite price index is also provided. Oxford University Press 2015 Article PeerReviewed Harvey, David I., Leybourne, Stephen J. and Sollis, Robert (2015) Recursive right-tailed unit root tests for an explosive asset price bubble. Journal of Financial Econometrics, 13 (1). pp. 166-187. ISSN 1479-8417 Rational bubble; Explosive autoregression; Unit root testing http://jfec.oxfordjournals.org/content/13/1/166 doi:10.1093/jjfinec/nbt025 doi:10.1093/jjfinec/nbt025 |
| spellingShingle | Rational bubble; Explosive autoregression; Unit root testing Harvey, David I. Leybourne, Stephen J. Sollis, Robert Recursive right-tailed unit root tests for an explosive asset price bubble |
| title | Recursive right-tailed unit root tests for an explosive asset price bubble |
| title_full | Recursive right-tailed unit root tests for an explosive asset price bubble |
| title_fullStr | Recursive right-tailed unit root tests for an explosive asset price bubble |
| title_full_unstemmed | Recursive right-tailed unit root tests for an explosive asset price bubble |
| title_short | Recursive right-tailed unit root tests for an explosive asset price bubble |
| title_sort | recursive right-tailed unit root tests for an explosive asset price bubble |
| topic | Rational bubble; Explosive autoregression; Unit root testing |
| url | https://eprints.nottingham.ac.uk/32667/ https://eprints.nottingham.ac.uk/32667/ https://eprints.nottingham.ac.uk/32667/ |