David Harvey (University of Nottingham)
| Dates: | 27 April 2017 |
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| Times: | 16:15 - 17:45 |
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| What is it: | Seminar |
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| Organiser: | School of Social Sciences |
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| Speaker: | David Harvey |
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Title: Sign-Based Tests for Financial Bubbles in the Presence of Nonstationary Volatility
Abstract: There is a large body of evidence illustrating that explosive bubbles (and collapses) in financial price series can have a substantial impact on financial and macroeconomic performance, motivating the importance of testing for the presence of explosive behaviour. Recent tests by Phillips, Wu and Yu (2011) and Phillips Shi and Yu (2015) have focused on using recursive right-tailed Dickey-Fuller-type tests to detect explosive autoregressive characteristics in the price series. The size of these tests is not robust to the presence of nonstationary volatility of the innovation process, e.g. when the unconditional variance of the innovations displays structural breaks, much evidence for which exists in practice. We consider a heteroskedasticity-robust approach to testing based on recursive right-tailed Dickey-Fuller-type tests applied to the partial sum of the signs of the first differences of prices. We find that the test generally offers improved power relative to an alternative robust testing approach that uses a wild bootstrap implementation of the Phillips et al. tests. A union of rejections procedure is also considered which combines inference from the sign-based test and the bootstrap approach, in an attempt to harness the better power of each test across different DGP settings.
Speaker
David Harvey
Role: Professor of Econometrics
Organisation: University of Nottingham
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G7
Humanities Bridgeford Street
Manchester
