Markov-switching Unit Root Test: A study of the Property Price Bubbles in Hong Kong and Seoul
Evans (1991) demonstrates that the unit root tests recommended by Hamilton and Whiteman (1985) and Diba and Grossman (1988) will fail to detect periodically collapsing rational bubbles. Hall et al. (1999) however show that the power of this test procedure can be improved by incorporating a Markov-switching state variable. In this paper, we apply both procedures to selected data from Hong Kong and Seoul. Both point to the possible existence of a periodically-collapsing bubble in each price series investigated, with the second procedure more precise on timing the bubble. Our Markovswitching model is validated using a symmetry test and a Wald test.
|Date of creation:||Feb 2006|
|Date of revision:|
|Contact details of provider:|| Postal: Nanyang Drive, Singapore 637332|
Fax: 6795 5797
Web page: http://egc.hss.ntu.edu.sg/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John Y. Campbell & Robert J. Shiller, 1986.
"Cointegration and Tests of Present Value Models,"
Cowles Foundation Discussion Papers
785, Cowles Foundation for Research in Economics, Yale University.
- John Y. Campbell & Robert J. Shiller, 1986. "Cointegration and Tests of Present Value Models," NBER Working Papers 1885, National Bureau of Economic Research, Inc.
- Campbell, John & Shiller, Robert, 1987. "Cointegration and Tests of Present Value Models," Scholarly Articles 3122490, Harvard University Department of Economics.
- Kim, Kyung-Hwan & Suh, Seoung Hwan, 1993. "Speculation and Price Bubbles in the Korean and Japanese Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 6(1), pages 73-87, January.
- Phillips, P C B, 1987.
"Time Series Regression with a Unit Root,"
Econometric Society, vol. 55(2), pages 277-301, March.
- Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
- Tom Doan, . "PPUNIT: RATS procedure to perform Phillips-Perron Unit Root test," Statistical Software Components RTS00160, Boston College Department of Economics.
- Diba, Behzad T & Grossman, Herschel I, 1988. "Explosive Rational Bubbles in Stock Prices?," American Economic Review, American Economic Association, vol. 78(3), pages 520-30, June.
- Raymond, Jennie E & Rich, Robert W, 1997. "Oil and the Macroeconomy: A Markov State-Switching Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 193-213, May.
- Robert P. Flood & Robert J. Hodrick & Paul Kaplan, 1986. "An Evaluation of Recent Evidence on Stock Market Bubbles," NBER Working Papers 1971, National Bureau of Economic Research, Inc.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
- Hall, Stephen G & Psaradakis, Zacharias & Sola, Martin, 1999. "Detecting Periodically Collapsing Bubbles: A Markov-Switching Unit Root Test," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(2), pages 143-54, March-Apr.
- 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.
- Cecchetti, Stephen G & Lam, Pok-sang & Mark, Nelson C, 1990.
"Mean Reversion in Equilibrium Asset Prices,"
American Economic Review,
American Economic Association, vol. 80(3), pages 398-418, June.
- Takatoshi Ito & Tokuo Iwaisako, 1996.
"Explaining Asset Bubbles in Japan,"
Monetary and Economic Studies,
Institute for Monetary and Economic Studies, Bank of Japan, vol. 14(1), pages 143-193, July.
- Bollerslev, Tim, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics,
Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Giuseppe Cavaliere, 2003. "Asymptotics for unit root tests under Markov regime-switching," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 193-216, 06.
- Chan, Hing Lin & Lee, Shu Kam & Woo, Kai Yin, 2001. "Detecting rational bubbles in the residential housing markets of Hong Kong," Economic Modelling, Elsevier, vol. 18(1), pages 61-73, January.
- Hamilton, James D., 1986. "State-space models," Handbook of Econometrics, in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 50, pages 3039-3080 Elsevier.
- Robert Breunig & Serinah Najarian & Adrian Pagan, 2003. "Specification Testing of Markov Switching Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 703-725, December.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
When requesting a correction, please mention this item's handle: RePEc:nan:wpaper:0602. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Magdalene Lim)
If references are entirely missing, you can add them using this form.