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Does Bitcoin bubble burst?

Author

Listed:
  • Zheng-Zheng Li

    (Ocean University of China)

  • Ran Tao

    (Shandong Entry-Exit Inspection and Quarantine Bureau)

  • Chi-Wei Su

    (Qingdao University)

  • Oana-Ramona Lobonţ

    (West University of Timisoara)

Abstract

This paper explores when will occur and collapse in Bitcoin bubbles by applying generalized sup augmented Dickey–Fuller test method proposed by Phillips et al. (Testing for multiple bubbles: historical episodes of exuberance and collapse in the S&P 500. Singapore Management University, Working Paper, No. 04-2013, 2013). The results show that there are six explosive bubbles in China and five bubbles in U.S. market, mostly occur in the period of huge surges in Bitcoin price. This is consistent with the bubble model originated by Blanchard and Watson (Bubbles, rational expectations and financial markets. NBER Working Paper, No. 945 1982) that certain asset price is decomposed into fundamental and the bubble components. In particular, exogenous shocks, including foreign or domestic economic events lead to the origination of bubbles. Serious financial crisis may trigger long-term and large- scale bubbles, while relative not persistence (short-term) bubbles are caused by domestic particular components. It can be inferred that Bitcoin can be used as a hedge against market specific risk. Finally, Bitcoin bubbles would collapse due to the administrative intervention by economic authorities. Thereby, government should lead public expectation to keep the confidence to authority and reduce the speculation behavior to stabilize the asset price and financial market.

Suggested Citation

  • Zheng-Zheng Li & Ran Tao & Chi-Wei Su & Oana-Ramona Lobonţ, 2019. "Does Bitcoin bubble burst?," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(1), pages 91-105, January.
  • Handle: RePEc:spr:qualqt:v:53:y:2019:i:1:d:10.1007_s11135-018-0728-3
    DOI: 10.1007/s11135-018-0728-3
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    References listed on IDEAS

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    Cited by:

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    3. Say Keat Ooi & Chai Aun Ooi & Jasmine A. L. Yeap & Tok Hao Goh, 2021. "Embracing Bitcoin: users’ perceived security and trust," Quality & Quantity: International Journal of Methodology, Springer, vol. 55(4), pages 1219-1237, August.
    4. Ferhat Pehlivanoğlu & Saffet Akdağ & Andrew Adewale Alola, 2021. "The causal nexus of geopolitical risks, consumer and producer confidence indexes: evidence from selected economies," Quality & Quantity: International Journal of Methodology, Springer, vol. 55(4), pages 1261-1273, August.

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    More about this item

    Keywords

    Bitcoin; Price bubble; Speculation; Block chain; 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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