Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/203568
Authors: 
Monschang, Verena
Wilfling, Bernd
Year of Publication: 
2019
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2019: 30 Jahre Mauerfall - Demokratie und Marktwirtschaft - Session: Econometrics No. G08-V4
Abstract: 
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 Wiling (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.
Subjects: 
Stock markets
present-value model
rational bubble
explosiveness
SADF and GSADF tests
bubble detection
date-stamping
JEL: 
C15
C32
C58
G15
Document Type: 
Conference Paper

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