Qin Xiao (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore) Randolph Gee Kwang Tan (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore)
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Evans (1991) demonstrates that the unit root tests recommended by Hamilton and Whiteman (1985) and Diba and Grossman (1988) will fail to detect periodically collapsing rational bubbles. Hall et al. (1999) however show that the power of this test procedure can be improved by incorporating a Markov-switching state variable. In this paper, we apply both procedures to selected data from Hong Kong and Seoul. Both point to the possible existence of a periodically-collapsing bubble in each price series investigated, with the second procedure more precise on timing the bubble. Our Markovswitching model is validated using a symmetry test and a Wald test.
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Paper provided by Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre in its series Economic Growth centre Working Paper Series with number
0602.
Find related papers by JEL classification: G12 - Financial Economics - - General Financial Markets - - - Asset Pricing C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
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