Sup-ADF-style bubble-detection methods under test
Monschang Verena, Wilfling Bernd
Working paperAbstract
In this paper we analyze the performance of supremum augmented Dickey-Fuller(SADF), generalized SADF (GSADF), and backward SADF (BSADF) tests, as introduced by Phillips et al. (International Economic Review 56:1043-1078, 2015) for detecting and date-stamping financial bubbles. In Monte Carlo simulations, we show that the SADF and GSADF tests may reveal substantial size distortions under typical financial-market characteristics (like the empirically well-documented leverage effect). We consider the rational bubble specification suggested by Rotermann and Wilfling (Applied Economics Letters 25:1091-1096, 2018) that is able to generate realistic stock-price dynamics (in terms of level trajectories and volatility paths). Simulating stock-price trajectories that contain these parametric bubbles, we demonstrate that the SADF and GSADF tests can have extremely low power under a wide range of bubble-parameter constellations. In an empirical analysis, we use NASDAQ data covering a time-span of 45 years and find that the outcomes of the bubble date-stamping procedure (based on the BSADF test) are sensitive to the data-frequency chosen by the econometrician.
Details about the publication
Authors from the University of Münster
| Monschang, Verena | Chair of Empirical Economics |
| Wilfling, Bernd | Professur für Volkswirtschaftslehre, empirische Wirtschaftsforschung (Prof. Wilfling) |
Promotionen, aus denen die Publikation resultiert
| Contributions to Forecasting and Hypothesis Testing with Application to Financial-Market Data Candidate: Monschang, Verena | Supervisors: Wilfling, Bernd; Trede, Mark | Reviewers: Trede, Mark; Wilfling, Bernd Period of time: 01/04/2017 - 01/07/2022 Doctoral examination procedure finished at: Doctoral examination procedure at University of Münster |