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Identifying Phases of Ebullience in EFTA Stock Markets

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  • Ullah, Irfan
  • Ahmed, Mumtaz

Abstract

Previous empirical literature supports that stock bubbles have impacts on efficient allocation of wealth. Researchers targeted various economies in the past using various methods to explore bubble phenomenon. This study uses generalized SADF test which is admitted by empirical literature as the most successful technique to explore stock bubbles in three countries included in European Free Trade Association (EFTA) not studied before. This paper takes a lead and tests for the existence of bubbles in monthly end index prices of respective countries based on latest available time series data from January 2001 to September 2019. Based on empirical results, it is concluded that all three countries stock markets experienced multiple bubbles in study period. The case of Iceland is worse where comparatively more fluctuations in stock prices are seen. To avoid occurrence of further stock price bubbles in these countries policy recommendations are provided as well.

Suggested Citation

  • Ullah, Irfan & Ahmed, Mumtaz, 2021. "Identifying Phases of Ebullience in EFTA Stock Markets," MPRA Paper 109633, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:109633
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    References listed on IDEAS

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    More about this item

    Keywords

    periodically collapsing bubbles; generalized supremum ADF; explosivity;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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