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Specification sensitivities in the Markov-switching unit root test for bubbles

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  • Shu-Ping Shi

Abstract

The aim of this article is to provide some empirical guidelines for the practical implementation of the Markov-switching augmented Dickey–Fuller (MSADF) test proposed by Hall et al. (J Appl Econom 14:143–154, 1999 ) for detecting explosive bubble behavior. We conduct simulation studies to compare the performance of the MSADF test under different error variance specifications, namely the constant variance and regime-dependent variance assumptions. An empirical application to the money base, consumer price and exchange rate in Argentina reveals the practical importance of the error variance specification on the MSADF test outcomes. Copyright Springer-Verlag 2013

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  • Shu-Ping Shi, 2013. "Specification sensitivities in the Markov-switching unit root test for bubbles," Empirical Economics, Springer, vol. 45(2), pages 697-713, October.
    • Handle: RePEc:spr:empeco:v:45:y:2013:i:2:p:697-713
    DOI: 10.1007/s00181-012-0635-8
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    12. Morita Rubens & Psaradakis Zacharias & Sola Martin & Yunis Patricio, 2024. "On testing for bubbles during hyperinflations," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 28(1), pages 25-37, February.
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    14. Yuchao Fan, 2022. "Dissecting the dot-com bubble in the 1990s NASDAQ," Papers 2206.14130, arXiv.org, revised Jul 2022.
    15. Andras Fulop & Jun Yu, 2017. "Bayesian Analysis of Bubbles in Asset Prices," Econometrics, MDPI, vol. 5(4), pages 1-23, October.
    16. Chaolin He & Yijia Gao & Feng Xiao & Liangling Tang & Yasir Khan, 2024. "A bubble identification mechanism: Evidence from the Chinese stock market," Pacific Economic Review, Wiley Blackwell, vol. 29(1), pages 55-87, February.
    17. Peter C. B. Phillips & Shuping Shi & Jun Yu, 2015. "Testing For Multiple Bubbles: Historical Episodes Of Exuberance And Collapse In The S&P 500," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(4), pages 1043-1078, November.
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    More about this item

    Keywords

    Rational bubble; Markov-switching unit root test; Error variance; Independent Markov-switching bubble process; C12;
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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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