Improving the accuracy of asset price bubble start and end date estimators

Harvey, David I.; Leybourne, Stephen J.; Sollis, Robert

Abstract

Recent research has proposed using recursive right-tailed unit root tests to date the start and end of asset price bubbles. In this paper an alternative approach is proposed that utilises model-based minimum sum of squared residuals estimators combined with Bayesian Information Criterion model selection. Conditional on the presence of a bubble, the dating procedures suggested are shown to offer consistent estimation of the start and end dates of a fixed magnitude bubble, and can also be used to distinguish between different types of bubble process, i.e. a bubble that does or does not end in collapse, or a bubble that is ongoing at the end of the sample. Monte Carlo simulations show that the proposed dating approach out-performs the recursive unit root test methods for dating periods of explosive autoregressive behaviour in finite samples, particularly in terms of accurate identification of a bubble's end point. An empirical application involving Nasdaq stock prices is discussed.

Citation

Harvey, D. I., Leybourne, S. J., & Sollis, R. (in press). Improving the accuracy of asset price bubble start and end date estimators. Journal of Empirical Finance, 40, https://doi.org/10.1016/j.jempfin.2016.11.001

• Journal Article Type: Article
• Acceptance Date: Nov 4, 2016
• Online Publication Date: Nov 9, 2016
• Deposit Date: Nov 10, 2016
• Publicly Available Date: Nov 10, 2016
• Journal: Journal of Empirical Finance
• Print ISSN: 0927-5398
• Electronic ISSN: 1879-1727
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 40
• DOI: https://doi.org/10.1016/j.jempfin.2016.11.001
• Keywords: Rational bubble; Explosive autoregression; Regime change; Break date estimation
• Public URL: https://nottingham-repository.worktribe.com/output/829473
• Publisher URL: http://www.sciencedirect.com/science/article/pii/S0927539816301219