IDEAS home Printed from https://ideas.repec.org/p/skb/wpaper/cofie-03-2013.html
   My bibliography  Save this paper

Testing for Multiple Bubbles 1: Historical Episodes of Exuberance and Collapse in the S&P 500

Author

Listed:
  • Peter C. B. Phillips

    (Yale University)

  • Shu-Ping Shi

    (The Australian National University)

  • Jun Yu

    (Sim Kee Boon Institute for Financial Economics, Singapore Management University)

Abstract

Recent work on econometric detection mechanisms has shown the e¤ectiveness of recur- sive procedures in identifying and dating ?nancial bubbles. These procedures are useful as warning alerts in surveillance strategies conducted by central banks and ?scal regulators with real time data. Use of these methods over long historical periods presents a more serious econometric challenge due to the complexity of the nonlinear structure and break mecha- nisms that are inherent in multiple bubble phenomena within the same sample period. To meet this challenge the present paper develops a new recursive ?exible window method that is better suited for practical implementation with long historical time series. The method is a generalized version of the sup ADF test of Phillips, Wu and Yu (2011, PWY) and de- livers a consistent date-stamping strategy for the origination and termination of multiple bubbles. Simulations show that the test signi?cantly improves discriminatory power and leads to distinct power gains when multiple bubbles occur. An empirical application of the methodology is conducted on S&P 500 stock market data over a long historical period from January 1871 to December 2010. The new approach successfully identi?es the well-known historical episodes of exuberance and collapse over this period, whereas the strategy of PWY and a related CUSUM dating procedure locate far fewer episodes in the same sample range.

Suggested Citation

  • Peter C. B. Phillips & Shu-Ping Shi & Jun Yu, 2013. "Testing for Multiple Bubbles 1: Historical Episodes of Exuberance and Collapse in the S&P 500," Working Papers CoFie-03-2013, Singapore Management University, Sim Kee Boon Institute for Financial Economics.
  • Handle: RePEc:skb:wpaper:cofie-03-2013
    as

    Download full text from publisher

    File URL: http://skbi.smu.edu.sg/sites/default/files/skbife/paper_no._cofie-wp-03-2013.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Date-stamping strategy; Flexible window; Generalized sup ADF test; Multiple bubbles; Rational bubble; Periodically collapsing bubbles; Sup ADF test;
    All these keywords.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:skb:wpaper:cofie-03-2013. 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: . General contact details of provider: https://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.

    We have no bibliographic references for this item. You can help adding them by using 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jaymie Xu (email available below). General contact details of provider: https://edirc.repec.org/data/sesmusg.html .

    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.