Topic: Bubble Testing under Deterministic Trends
Speaker: Jun Yu, Singapore Management University
Time: Friday, May 25, 14:00-15:00
Place: Room 217, Guanghua Building 2
This paper develops the asymptotic theory of the ordinary least squares estimator of the autoregressive (AR) coefficient in various AR models, when data is generated from trend-stationary models in different forms. It is shown that, depending on how the autoregression is specified, the commonly used right-tailed unit root tests may tend to reject the null hypothesis of unit root in favor of the explosive alternative. A new procedure to implement the right-tailed unit root tests is proposed. It is shown that when the data generating process is trend-stationary, the test statistics based on the proposed procedure cannot find evidence of explosiveness. Whereas, when the data generating process is mildly explosive, the unit root tests find evidence of explosiveness. Hence, the proposed procedure enables robust bubble testing under deterministic trends. Empirical implementation of the proposed procedure using data from the stock and the real estate markets in the US reveals some interesting findings. While our proposed procedure flags the same number of bubbles episodes in the stock data as the method developed in Phillips, Shi and Yu (2015a, PSY), the estimated termination dates by the proposed procedure match better with the data. For real estate data, all negative bubble episodes flagged by PSY are no longer regarded as bubbles by the proposed procedure.
Professor Jun Yu is Lee Kong Chian Professor of Economics and Finance at SMU.
Professor Yu has a substantial record of research publications in econometrics and has worked extensively on econometric and statistical theory of financial data. Additionally, he has built new theoretical models for transaction prices from residential real estate markets. His recent work with Professor Peter Phillips for detecting the presence of asset price bubbles and estimating their origination and termination dates is now being utilised by a number of central banks. Currently, he is the lead Principal Investigator of a project for the Academic Research Fund Tier 3 programme on the economics of ageing funded by Ministry of Education. Before that, he was the director of Sim Kee Boon Institute for Financial Economics.
Professor Yu holds an MA and PhD in Economics from University of Western Ontario and a BSc in Mathematics and BA in Economics from Wuhan University. He is a Fellow of the Journal of Econometrics and also a Fellow of the Society of Financial Econometrics.
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