Bubbles and Crashes : A Tale of Quantiles

Pavlidis, Efthymios (2024) Bubbles and Crashes : A Tale of Quantiles. Journal of Time Series Analysis. ISSN 0143-9782 (In Press)

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Abstract

Periodically collapsing bubbles, if they exist, induce asymmetric dynamics in asset prices. In this paper, I show that unit root quantile autoregressive models can approximate such dynamics by allowing the largest autoregressive root to take values below unity at low quantiles, which correspond to price crashes, and above unity at upper quantiles, that correspond to bubble expansions. On this basis, I employ two unit root tests based on quantile autoregressions to detect bubbles. Monte Carlo simulations suggest that the two tests have good size and power properties, and can outperform recursive least-squares based tests. The merits of the two tests are further illustrated in three empirical applications that examine Bitcoin, U.S. equity and U.S. housing markets. In the empirical applications, special attention is given to the issue of controlling for economic fundamentals. The estimation results indicate the presence of asymmetric dynamics that closely match those of the simulated bubble processes.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Time Series Analysis
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2600/2604
Subjects:
?? applied mathematicsstatistics and probabilitystatistics, probability and uncertainty ??
ID Code:
225178
Deposited By:
Deposited On:
21 Oct 2024 10:55
Refereed?:
Yes
Published?:
In Press
Last Modified:
07 Dec 2024 00:59