Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/288327 
Year of Publication: 
2020
Citation: 
[Journal:] Empirical Economics [ISSN:] 1435-8921 [Volume:] 61 [Issue:] 1 [Publisher:] Springer [Place:] Berlin, Heidelberg [Year:] 2020 [Pages:] 145-172
Publisher: 
Springer, Berlin, Heidelberg
Abstract: 
In this paper, we analyze the capacity of supremum augmented Dickey–Fuller (SADF), generalized SADF (GSADF), and of several heteroscedasticity-adjusted sup-ADF-style tests for detecting and date-stamping financial bubbles. Our Monte Carlo simulations find that the majority of the sup-ADF-style tests exhibit substantial size distortions, when the data-generating process is subject to leverage effects. Moreover, the sup-ADF-style tests often have low empirical power in identifying a (flexible and empirically relevant) rational stock-price bubble, recently proposed in the literature. In a simulation study, we compare the effectiveness of two real-time bubble date-stamping procedures (Procedures 1 and 2), both based on variants of the backward SADF (BSADF) test. While Procedure 1 (predominantly) provides better estimates of the bubbles’ origination and termination dates than Procedure 2, the first procedure frequently stamps non-existing bubbles. In an empirical application, we use NASDAQ data covering a time-span of 45 years and find that the bubble date-stamping outcomes of both procedures are sensitive to the data frequency chosen by the econometrician.
Subjects: 
Stock markets
Present-value model
Rational bubble
Explosiveness
SADF and GSADF tests
Bubble detection
Date-stamping
JEL: 
C15
C32
C58
G15
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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