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Sequential monitoring of stock market price changes

Author

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  • Li, Hemei
  • Liu, Zhenya
  • Xiao, Zhijie

Abstract

In 2016, Eugene Fama mentioned that he wanted a systematic way of identifying and predicting a stock market bubble. This paper develops a statistical method to sequentially monitor the stock market price changes. A new simple boundary function is proposed and asymptotic properties are established. In the empirical application, we successfully detect that the U.S. dot-com bubble occurred around June 1997 using the S&P 500 and Nasdaq indices.

Suggested Citation

  • Li, Hemei & Liu, Zhenya & Xiao, Zhijie, 2024. "Sequential monitoring of stock market price changes," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 156-172.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pa:p:156-172
    DOI: 10.1016/j.iref.2023.07.105
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    References listed on IDEAS

    as
    1. Peter C. B. Phillips & Shuping Shi & Jun Yu, 2015. "Testing For Multiple Bubbles: Historical Episodes Of Exuberance And Collapse In The S&P 500," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(4), pages 1043-1078, November.
    2. Horváth, Lajos & Liu, Zhenya & Rice, Gregory & Wang, Shixuan, 2020. "Sequential monitoring for changes from stationarity to mild non-stationarity," Journal of Econometrics, Elsevier, vol. 215(1), pages 209-238.
    3. Marco Barassi & Lajos Horváth & Yuqian Zhao, 2020. "Change‐Point Detection in the Conditional Correlation Structure of Multivariate Volatility Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(2), pages 340-349, April.
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    5. Pastor, Lubos & Veronesi, Pietro, 2006. "Was there a Nasdaq bubble in the late 1990s?," Journal of Financial Economics, Elsevier, vol. 81(1), pages 61-100, July.
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    More about this item

    Keywords

    Sequential monitoring; Stock market price; Structural breaks; Boundary function;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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