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Are there bubbles in exchange rates? Some new evidence from G10 and emerging market economies

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  • Hu, Yang
  • Oxley, Les

Abstract

The existence, or otherwise, of bubbles has become a topical issue in economics and finance, particularly following the Global Financial Crisis. Using the generalized sup ADF (GSADF), unit root tests of Phillips et al. (2015a, PSY) we investigate evidence for exchange rate bubbles in some G10, Asian and BRICS countries from Mar.1991-Dec.2014. We conclude that the US$-Mexican Peso crisis of 1994–95 was a bubble. Of particular interest to financial market trading, is that newly emerging countries, with relatively shallow financial markets, may be more likely to exhibit bubbly behavior in foreign exchange markets than more mature G10 countries.

Suggested Citation

  • Hu, Yang & Oxley, Les, 2017. "Are there bubbles in exchange rates? Some new evidence from G10 and emerging market economies," Economic Modelling, Elsevier, vol. 64(C), pages 419-442.
    • Handle: RePEc:eee:ecmode:v:64:y:2017:i:c:p:419-442
    DOI: 10.1016/j.econmod.2017.02.022
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    Cited by:

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    5. Kruse, Robinson & Kaufmann, Hendrik & Wegener, Christoph, 2018. "Bias-corrected estimation for speculative bubbles in stock prices," Economic Modelling, Elsevier, vol. 73(C), pages 354-364.
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    7. Ahmed, Mumtaz & Bashir, Uzma & Ullah, Irfan, 2021. "Testing for explosivity in US-Pak Exchange Rate via Sequential ADF Procedures," MPRA Paper 109607, University Library of Munich, Germany.
    8. Hudepohl, Tom & van Lamoen, Ryan & de Vette, Nander, 2021. "Quantitative easing and exuberance in stock markets: Evidence from the euro area," Journal of International Money and Finance, Elsevier, vol. 118(C).
    9. Waqar Muhammad Khan & Moniba Sana & Shahid Akbar, 2023. "The Effect of Petroleum Prices on Basic Food and Energy Commodities: An investigation through Sequential ADF tests," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 12(3), pages 912-921.
    10. Daan Steenkamp, 2017. "How bubbly is the New Zealand dollar?," Reserve Bank of New Zealand Discussion Paper Series DP2017/03, Reserve Bank of New Zealand.
    11. Yuchao Fan, 2022. "Dissecting the dot-com bubble in the 1990s NASDAQ," Papers 2206.14130, arXiv.org, revised Jul 2022.
    12. A. Adenekan & G. Sanni & A. Itodo, 2019. "Investigating the Impact of Exchange Rate Volatility on Naira Exchange Rate in Nigeria," Economic and Financial Review, Central Bank of Nigeria, vol. 57(3), September.
    13. Gomis-Porqueras, Pedro & Shi, Shuping & Tan, David, 2022. "Gold as a financial instrument," Journal of Commodity Markets, Elsevier, vol. 27(C).
    14. Piehler, Maximilian, 2020. "Prospect Theory and Stock Returns During Bubbles," Junior Management Science (JUMS), Junior Management Science e. V., vol. 5(3), pages 262-294.
    15. Aktham Maghyereh & Hussein Abdoh, 2022. "Bubble contagion effect between the main precious metals," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 40(1), pages 43-63, March.
    16. Steenkamp, Daan, 2018. "Explosiveness in G11 currencies," Economic Modelling, Elsevier, vol. 68(C), pages 388-408.
    17. Harvey, David I. & Leybourne, Stephen J. & Whitehouse, Emily J., 2020. "Date-stamping multiple bubble regimes," Journal of Empirical Finance, Elsevier, vol. 58(C), pages 226-246.
    18. Xiaojian Su & Cheng Peng & Zhike Lv & Chao Deng, 2022. "Do the Renminbi and Hong Kong dollar bubbles interact?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 312-319, January.
    19. Geraldo E. Silva jr. & Sidney M. Caetano, 2024. "Inception-expansion-bursting bubbles in the BRICS-dollar exchange rates," Economics Bulletin, AccessEcon, vol. 44(3), pages 961-974.
    20. Assaf, Ata, 2018. "Testing for bubbles in the art markets: An empirical investigation," Economic Modelling, Elsevier, vol. 68(C), pages 340-355.
    21. Maouchi, Youcef & Charfeddine, Lanouar & El Montasser, Ghassen, 2022. "Understanding digital bubbles amidst the COVID-19 pandemic: Evidence from DeFi and NFTs," Finance Research Letters, Elsevier, vol. 47(PA).

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    More about this item

    Keywords

    Bubbles; Rational bubbles; GSADF test; G10 countries; Emerging markets & BRICS countries;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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