Markov-switching Unit Root Test: A study of the Property Price Bubbles in Hong Kong and Seoul
AbstractEvans (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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Bibliographic InfoPaper 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.
Length: 55 pages
Date of creation: Feb 2006
Date of revision:
Markov-switching; unit root test; periodically-collapsing bubble; real-estate;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
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