Periodically Collapsing Bubbles in the Us Stock Market?
Posted: 8 Dec 2003
Abstract
The existence of periodically collapsing bubbles in stock markets, applying the Enders-Siklos momentum threshold autoregressive model, is empirically investigated in this paper. Using this non-linear time series technique, we are now able to analyse bubble driven run-ups in stock prices followed by a crash in a cointegration framework with asymmetric adjustment. Therefore, applying this technique makes possible a deeper insight into the behavior of stock prices than was previously possible using conventional cointegration tests. Although the results from the subsample 1871 - 1995 cannot be interpreted in favor of the existence of periodically collapsing bubbles in the US stock market, the findings from the 1871 - 2001 sample period indicate their presence.
Keywords: Periodically Collapsing Bubbles, Asymmetric Adjustment, Threshold Cointegration
JEL Classification: G12, E44, C32
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