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Double-Question Survey Measures for the Analysis of Financial Bubbles and Crashes

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  • M. Hashem Pesaran
  • Ida Johnsson

Abstract

This article proposes a new double-question survey whereby an individual is presented with two sets of questions; one on beliefs about current asset values and another on price expectations. A theoretical asset pricing model with heterogeneous agents is advanced and the existence of a negative relationship between price expectations and asset valuations is established, and is then tested using survey results on equity, gold, and house prices. Leading indicators of bubbles and crashes are proposed and their potential value is illustrated in the context of a dynamic panel regression of realized house price changes across key Metropolitan Statistical Areas (MSAs) in the U.S. In an out-of-sample forecasting exercise, it is also shown that forecasts of house price changes (pooled across MSAs) that make use of bubble and crash indicators perform significantly better than a benchmark model that only uses lagged and expected house price changes. Supplementary materials for this article are available online.

Suggested Citation

  • M. Hashem Pesaran & Ida Johnsson, 2020. "Double-Question Survey Measures for the Analysis of Financial Bubbles and Crashes," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(2), pages 428-442, April.
    • Handle: RePEc:taf:jnlbes:v:38:y:2020:i:2:p:428-442
    DOI: 10.1080/07350015.2018.1513845
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    More about this item

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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