Browse by author
Lookup NU author(s): Professor Robert Sollis
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License (CC BY-NC 4.0).
In this article, we compare the local asymptotic and finite sample power of two recently proposed recursive right-tailed Dickey–Fuller-type tests for an explosive rational bubble in asset prices. It is shown that the power of the two tests can differ substantially depending on the location of the explosive regime, and whether such a regime ends in collapse. Since this information is typically unknown to the practitioner, we propose a union of rejections strategy that combines inference from the two individual tests. We find that, for a given specification of the explosive regime, the union of rejections strategy always attains power close to the better of the individual tests considered. An empirical illustration using the Nasdaq composite price index is also provided.
Author(s): Harvey D, Leybourne SJ, Sollis R
Publication type: Article
Publication status: Published
Journal: Journal of Financial Econometrics
Print publication date: 01/01/2015
Online publication date: 02/12/2013
Acceptance date: 01/01/1900
Date deposited: 22/02/2018
ISSN (print): 1479-8409
ISSN (electronic): 1479-8417
Publisher: Oxford University Press
Altmetrics provided by Altmetric