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Testing for multiple bubbles in bitcoin markets: A generalized sup ADF test

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  • Su, Chi-Wei
  • Li, Zheng-Zheng
  • Tao, Ran
  • Si, Deng-Kui

Abstract

This study investigates whether bubbles exist in Bitcoin markets and tracks when they will occur and collapse. We apply the generalized sup Augmented Dickey-Fuller test method proposed by Phillips et al. (2013). The results show that there have been four explosive bubbles in China and the U.S. market, primarily occurring during the periods of huge surges in Bitcoin prices. This is consistent with the bubble model improved by Gurkaynak (2008), in which asset price is decomposed into fundamental and bubble components. In particular, exogenous shocks, including foreign or domestic economic events, lead to the origination of bubbles. A serious financial crisis may trigger long-term and large-scale bubbles, whereas relatively short-term bubbles are caused by domestic components. It can be inferred that Bitcoin can be used as a hedge against market-specific risk. Finally, Bitcoin bubbles collapse due to administrative intervention by economic authorities. Therefore, the government should manage public expectations to maintain confidence in authority and reduce speculation behavior to stabilize the asset price and financial market.

Suggested Citation

  • Su, Chi-Wei & Li, Zheng-Zheng & Tao, Ran & Si, Deng-Kui, 2018. "Testing for multiple bubbles in bitcoin markets: A generalized sup ADF test," Japan and the World Economy, Elsevier, vol. 46(C), pages 56-63.
  • Handle: RePEc:eee:japwor:v:46:y:2018:i:c:p:56-63
    DOI: 10.1016/j.japwor.2018.03.004
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    9. Christian M. Hafner, 2020. "Alternative Assets and Cryptocurrencies," JRFM, MDPI, vol. 13(1), pages 1-3, January.
    10. Bouri, Elie & Shahzad, Syed Jawad Hussain & Roubaud, David, 2019. "Co-explosivity in the cryptocurrency market," Finance Research Letters, Elsevier, vol. 29(C), pages 178-183.
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    12. Shahzad, Syed Jawad Hussain & Balli, Faruk & Naeem, Muhammad Abubakr & Hasan, Mudassar & Arif, Muhammad, 2022. "Do conventional currencies hedge cryptocurrencies?," The Quarterly Review of Economics and Finance, Elsevier, vol. 85(C), pages 223-228.
    13. Walid Mensi & Mobeen Ur Rehman & Muhammad Shafiullah & Khamis Hamed Al-Yahyaee & Ahmet Sensoy, 2021. "High frequency multiscale relationships among major cryptocurrencies: portfolio management implications," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-21, December.
    14. Enoksen, F.A. & Landsnes, Ch.J. & Lučivjanská, K. & Molnár, P., 2020. "Understanding risk of bubbles in cryptocurrencies," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 129-144.
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    17. Pyo, Sujin & Lee, Jaewook, 2020. "Do FOMC and macroeconomic announcements affect Bitcoin prices?," Finance Research Letters, Elsevier, vol. 37(C).
    18. Süssmuth, Bernd, 2019. "Bitcoin and Web Search Query Dynamics: Is the price driving the hype or is the hype driving the price?," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203566, Verein für Socialpolitik / German Economic Association.
    19. Kyriazis, Nikolaos & Papadamou, Stephanos & Corbet, Shaen, 2020. "A systematic review of the bubble dynamics of cryptocurrency prices," Research in International Business and Finance, Elsevier, vol. 54(C).
    20. Bernd Süssmuth, 2022. "The mutual predictability of Bitcoin and web search dynamics," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(3), pages 435-454, April.
    21. Panagiotidis, Theodore & Stengos, Thanasis & Vravosinos, Orestis, 2019. "The effects of markets, uncertainty and search intensity on bitcoin returns," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 220-242.
    22. Kliber, Agata & Marszałek, Paweł & Musiałkowska, Ida & Świerczyńska, Katarzyna, 2019. "Bitcoin: Safe haven, hedge or diversifier? Perception of bitcoin in the context of a country’s economic situation — A stochastic volatility approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 524(C), pages 246-257.
    23. Dulani Jayasuriya Daluwathumullagamage & Alexandra Sims, 2021. "Fantastic Beasts: Blockchain Based Banking," JRFM, MDPI, vol. 14(4), pages 1-43, April.
    24. Xun Zhang & Fengbin Lu & Rui Tao & Shouyang Wang, 2021. "The time-varying causal relationship between the Bitcoin market and internet attention," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-19, December.

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    More about this item

    Keywords

    Bitcoin; Price bubble; Speculation; GSADF;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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