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Unit root testing for bubbles: A resurrection?

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  • Waters, George A.

Abstract

Evans [Evans, G., Pitfalls in testing for explosive bubbles in asset prices. The American Economic Review 1991;81;922-930] and Charemza and Deadman [Charemza, W., Deadman, D., Speculative bubbles with stochastic explosive roots: The failure of unit root testing. Journal of Empirical Finance 1991;2;153-163] present models of bubbles that are not detectable by unit root tests. This paper shows that for a more natural log specification of the tests, bubbles generated by the latter model are detectable.

Suggested Citation

  • Waters, George A., 2008. "Unit root testing for bubbles: A resurrection?," Economics Letters, Elsevier, vol. 101(3), pages 279-281, December.
  • Handle: RePEc:eee:ecolet:v:101:y:2008:i:3:p:279-281
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    References listed on IDEAS

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    1. Parke, William R. & Waters, George A., 2007. "An evolutionary game theory explanation of ARCH effects," Journal of Economic Dynamics and Control, Elsevier, vol. 31(7), pages 2234-2262, July.
    2. George A. Waters & James E. Payne, 2007. "REIT markets and rational speculative bubbles: an empirical investigation," Applied Financial Economics, Taylor & Francis Journals, vol. 17(9), pages 747-753.
    3. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    4. Diba, Behzad T & Grossman, Herschel I, 1988. "Explosive Rational Bubbles in Stock Prices?," American Economic Review, American Economic Association, vol. 78(3), pages 520-530, June.
    5. Charemza, Wojciech W. & Deadman, Derek F., 1995. "Speculative bubbles with stochastic explosive roots: The failure of unit root testing," Journal of Empirical Finance, Elsevier, vol. 2(2), pages 153-163, June.
    6. Taylor, Mark P. & Peel, David A., 1998. "Periodically collapsing stock price bubbles: a robust test," Economics Letters, Elsevier, vol. 61(2), pages 221-228, November.
    7. Evans, George W, 1991. "Pitfalls in Testing for Explosive Bubbles in Asset Prices," American Economic Review, American Economic Association, vol. 81(4), pages 922-930, September.
    8. Alok Bhargava, 1986. "On the Theory of Testing for Unit Roots in Observed Time Series," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 369-384.
    9. James Payne & George Waters, 2007. "Have Equity REITs Experienced Periodically Collapsing Bubbles?," The Journal of Real Estate Finance and Economics, Springer, vol. 34(2), pages 207-224, February.
    10. Bohl, Martin T., 2003. "Periodically collapsing bubbles in the US stock market?," International Review of Economics & Finance, Elsevier, vol. 12(3), pages 385-397.
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    Citations

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    Cited by:

    1. Jahan-Parvar, Mohammad R. & Waters, George A., 2010. "Equity price bubbles in the Middle Eastern and North African Financial markets," Emerging Markets Review, Elsevier, vol. 11(1), pages 39-48, March.
    2. Chen, Shyh-Wei & Hsu, Chi-Sheng & Xie, Zixong, 2016. "Are there periodically collapsing bubbles in the stock markets? New international evidence," Economic Modelling, Elsevier, vol. 52(PB), pages 442-451.
    3. Chen, Shyh-Wei & Xie, Zixiong, 2017. "Asymmetric adjustment and smooth breaks in dividend yields: Evidence from international stock markets," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 339-354.
    4. Deev, Oleg & Kajurova, Veronika & Stavarek, Daniel, 2013. "Testing rational speculative bubbles in Central European stock markets," MPRA Paper 46582, University Library of Munich, Germany.
    5. Catherine ARAUJO BONJEAN & Catherine SIMONET, 2011. "Are grain markets in Niger driven by speculation?," Working Papers 201128, CERDI.

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