Department of Economics and Business Economics

When bubbles burst: Econometric tests based on structural breaks

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When bubbles burst : Econometric tests based on structural breaks. / Breitung, J.; Kruse, Robinson.

In: Statistical Papers, Vol. 54, No. 4, 01.11.2013, p. 911-930.

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

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Breitung, J. ; Kruse, Robinson. / When bubbles burst : Econometric tests based on structural breaks. In: Statistical Papers. 2013 ; Vol. 54, No. 4. pp. 911-930.

Bibtex

@article{d506adaa4cc84e1fbcb609fb0621a15c,
title = "When bubbles burst: Econometric tests based on structural breaks",
abstract = "Speculative bubbles have played an important role ever since in financial economics. During an ongoing bubble it is relevant for investors and policy-makers to know whether the bubble continues to grow or whether it is already collapsing. Prices are typically well approximated by a random walk in absence of bubbles, while periods of bubbles are characterised by explosive price paths. In this paper we first propose a conventional Chow-type testing procedure for a structural break from an explosive to a random walk regime. It is shown that under the null hypothesis of a mildly explosive process a suitably modified Chow-type statistic possesses a standard normal limiting distribution. Second, a monitoring procedure based on the CUSUM statistic is suggested. It timely indicates such a structural change. Asymptotic results are derived and small-sample properties are studied via Monte Carlo simulations. Finally, two empirical applications illustrate the merits and limitations of our suggested procedures.",
author = "J. Breitung and Robinson Kruse",
year = "2013",
month = nov,
day = "1",
doi = "10.1007/s00362-012-0497-3",
language = "English",
volume = "54",
pages = "911--930",
journal = "Statistical Papers",
issn = "0932-5026",
publisher = "Springer",
number = "4",

}

RIS

TY - JOUR

T1 - When bubbles burst

T2 - Econometric tests based on structural breaks

AU - Breitung, J.

AU - Kruse, Robinson

PY - 2013/11/1

Y1 - 2013/11/1

N2 - Speculative bubbles have played an important role ever since in financial economics. During an ongoing bubble it is relevant for investors and policy-makers to know whether the bubble continues to grow or whether it is already collapsing. Prices are typically well approximated by a random walk in absence of bubbles, while periods of bubbles are characterised by explosive price paths. In this paper we first propose a conventional Chow-type testing procedure for a structural break from an explosive to a random walk regime. It is shown that under the null hypothesis of a mildly explosive process a suitably modified Chow-type statistic possesses a standard normal limiting distribution. Second, a monitoring procedure based on the CUSUM statistic is suggested. It timely indicates such a structural change. Asymptotic results are derived and small-sample properties are studied via Monte Carlo simulations. Finally, two empirical applications illustrate the merits and limitations of our suggested procedures.

AB - Speculative bubbles have played an important role ever since in financial economics. During an ongoing bubble it is relevant for investors and policy-makers to know whether the bubble continues to grow or whether it is already collapsing. Prices are typically well approximated by a random walk in absence of bubbles, while periods of bubbles are characterised by explosive price paths. In this paper we first propose a conventional Chow-type testing procedure for a structural break from an explosive to a random walk regime. It is shown that under the null hypothesis of a mildly explosive process a suitably modified Chow-type statistic possesses a standard normal limiting distribution. Second, a monitoring procedure based on the CUSUM statistic is suggested. It timely indicates such a structural change. Asymptotic results are derived and small-sample properties are studied via Monte Carlo simulations. Finally, two empirical applications illustrate the merits and limitations of our suggested procedures.

UR - http://www.scopus.com/inward/record.url?scp=84885898542&partnerID=8YFLogxK

U2 - 10.1007/s00362-012-0497-3

DO - 10.1007/s00362-012-0497-3

M3 - Journal article

AN - SCOPUS:84885898542

VL - 54

SP - 911

EP - 930

JO - Statistical Papers

JF - Statistical Papers

SN - 0932-5026

IS - 4

ER -