IDEAS home Printed from https://ideas.repec.org/p/siu/wpaper/15-2011.html
   My bibliography  Save this paper

Specification Sensitivity in Right-Tailed Unit Root Testing for Explosive Behavior

Author

Listed:
  • Peter C. B. Phillips

    () (Yale University, University of Auckland, University of Southampton & Singapore Management University)

  • Shu-Ping Shi

    () (Research School of Economics, The Australian National University)

  • Jun Yu

    () (School of Economics, Singapore Management Unversity)

Abstract

Right-tailed unit root tests have proved promising for detecting exuberance in economic and financial activities. Like left-tailed tests, the limit theory and test performance are sensitive to the null hypothesis and the model specification used in parameter estimation. This paper aims to provide some empirical guidelines for the practical implementation of right-tailed unit root tests, focussing on the sup ADF test of Phillips, Wu and Yu (2011), which implements a right- tailed ADF test repeatedly on a sequence of forward sample recursions. We analyze and compare the limit theory of the sup ADF test under different hypotheses and model specifications. The size and power properties of the test under various scenarios are examined in simulations and some recommendations for empirical practice are given. Empirical applications to the Nasdaq and to Australian and New Zealand housing data illustrate these specification issues and reveal their practical importance in testing.

Suggested Citation

  • Peter C. B. Phillips & Shu-Ping Shi & Jun Yu, 2011. "Specification Sensitivity in Right-Tailed Unit Root Testing for Explosive Behavior," Working Papers 15-2011, Singapore Management University, School of Economics.
  • Handle: RePEc:siu:wpaper:15-2011
    as

    Download full text from publisher

    File URL: https://mercury.smu.edu.sg/rsrchpubupload/19544/Hypothesis_NOV2011J.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Peter C.B. Phillips & Shu-Ping Shi & Jun Yu, 2011. "Testing for Multiple Bubbles," Working Papers 09-2011, Singapore Management University, School of Economics.
    2. Diba, Behzad T & Grossman, Herschel I, 1988. "Explosive Rational Bubbles in Stock Prices?," American Economic Review, American Economic Association, vol. 78(3), pages 520-530, June.
    3. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    4. Evans, George W, 1991. "Pitfalls in Testing for Explosive Bubbles in Asset Prices," American Economic Review, American Economic Association, vol. 81(4), pages 922-930, September.
    5. Phillips, Peter C.B. & Magdalinos, Tassos, 2007. "Limit theory for moderate deviations from a unit root," Journal of Econometrics, Elsevier, vol. 136(1), pages 115-130, January.
    6. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Unit root test; Mildly explosive process; Recursive regression; Size and power.;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:siu:wpaper:15-2011. 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: (QL THor). General contact details of provider: http://edirc.repec.org/data/sesmusg.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.