ANALYZING MULTIPLE BUBBLES IN THE USDKZT EXCHANGE RATE USING THE GSADF TEST

Year 2021, Volume: 3 Issue: 2, 7 - 18, 30.07.2021

Mert Ural

Abstract

Since most of the financial crisis caused by the bursting bubble of financial assets, the investigation of bubble behaviors and the early detection for the prevention of adverse economic consequences is important. This paper investigates whether multiple price bubbles exist in USDKZT exchange rate on the basis of a recursive right tailed Generalized Supremum Augmented Dickey Fuller Test (GSADF) developed by Phillips, Shi and Yu (2015), as well as to determine date stamps of the price bubbles. In this regard, we performed GSADF test by using weekly closing prices of the nominal exchange rate for the period between 23.08.2015 to 04.04.2021. In line with the empirical findings obtained, two explosive bubbles are detected in 2018 and 2020 when USDKZT exchange rate deviates from fundamental value. Our findings suggest that due to the possibility of bubble repetition, GSADF has been verified to be a better test for detecting bubbles.

Keywords

Multiple Bubbles, USDKZT Exchange Rate, GSADF Unit Root Test

References

• Abioglu, Vasif (2020). “Turkiye konut piyasasinda balon olusumlari: bolgesel inceleme” [Bubble formations in the Turkish housing market: regional analysis]. Finansal Arastirmalar ve Calismalar Dergisi 12(22): 1-14.
• Afsar, Asli and Emrah Dogan (2018). “Analyzing asset of bubbles in the housing market with right-tailed unit root tests: the case of Turkey”. Journal of Business Economics and Finance 7(2): 139-147.
• Ahmed, Ehsan, J. Barkley Rosser, Jr. and Jamshed Y. Uppal (2016). “Financialization and speculative bubbles - international evidence”. CAMA Working Paper No.6/2017: 1-28.
• Akkaya, Murat (2018). “Borsa Istanbul hisse senedi getirilerinde balon olusumu uzerine bir uygulama” [An application on the bubble formation in Istanbul stock returns]. C.U. Iktisadi ve İdari Bilimler Dergisi 19(1): 188-200.
• Bettendorf, Timo and Chen Wenjuan (2013). “Are there bubbles in the sterlingdollar exchange rate? New evidence from sequential ADF tests”. Economics Letters 120(2): 350-353.
• Bouri, Elie, Syed Jawad Hussain Shahzad and David Roubaud (2018). “Coexplosivity in the cryptocurrency market”. Finance Research Letters 29(c): 178- 183.
• Buyukduman, Ahmet (2014). Bir Kent Efsanesi Konut Balonu [An Urban Legend Housing Bubble]. Istanbul: Scala Yayincilik.
• Caspi, Itamar (2013). “RTADF: Testing for bubbles with EViews”. Munich Personal RePEc Archive 58791: 1-16.
• Сagli, Efe C. and Pinar. E. Mandaci (2017). “Borsa Istanbul’da rasyonel balon varligi: Sektor endeksleri uzerine bir analiz” [Rational bubble existence in Borsa Istanbul: An analysis on sector indices]. Finans Politik and Ekonomik Yorumlar No. 629: 63-76.
• Celik, Ismail, Hilmi T. Akkus and Nazligul Gulcan (2019). “Investigation of rational bubbles and volatility spillovers in commodity markets: Evidences from precious metals”. Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty 6(3): 937-951.
• Ceylan, Fatih, Ramazan Ekinci, Osman Tuzun, Hakan Kahyaoglu (2018). “Kripto para piyasasinda balonlarin tespiti: Bitcoin ve etherium ornegi” [Detection of bubbles in the cryptocurrency market: Case of Bitcoin and etherium]. Bussines ve Management Studies: An International Journal 6(3): 263-274.
• Chang, Eric C., Joseph W. Cheng and Ajay Khorana (2000). “An examination of herd behaviour in equity markets: An international perspective”. Journal of Banking and Finance 24(10): 1651-1679.
• Cheung, Adrian, Eduardo Roca and Jen-Je Su (2015). “Crypto-Currency Bubbles: an Application of the Phillips–Shi Yu (2013) Methodology on Mt. Gox Bitcoin Prices”. Applied Economics 47(23): 2348-2358.
• Corbet, Shaen, Brian Lucey and Larisa Yarovaya (2018). “Datestamping the Bitcoin and ethereum bubbles”. Finance Research Letters 26(c): 81-88.
• Coskun, Yener, Arvydas Jadevicius (2017). “Is there a housing bubble in Turkey?”. Real Estate Management and Valuation 25(1): 48-73.
• Diba, Behzad and Herschel Grossman (1988). “Explosive rational bubbles in stock prices?”. American Economic Review 78(3): 520-530.
• Engsted, Tom, Simon J. Hviid and Thomas Pedersen (2016). “Explosive bubbles in house prices? Evidence from the OECD countries”. Journal of International Financial Markets, Institutions and Money 40(c): 14-25.
• Enoksen, Fredrik A., Christian J. Landsnes, Katarína Lucivjanská and Peter Molnár (2020). “Understanding risk of bubbles in cryptocurrencies”. Journal of Economic Behavior and Organization 176: 129-144.
• Escobari, Diego and Mohammad Jafarinejad (2016). “Date stamping bubbles in real estate investment trusts”. The Quarterly Review of Economics and Finance 60(c): 224-230.
• Evrim, Pinar M. and Efe C. Cagli (2018). “Turkiye konut piyasasinda balon var mi? Istatistiki bolge birimleri uzerine bir analiz” [Is there a bubble in the Turkish housing market? An analysis on statistical regional units]. Finans Politik ve Ekonomik Yorumlar Dergisi 55(646): 85-113.
• Ghosh, Bikramaditya (2016). “Rational bubble testing: An in-depth study on CNX nifty”. Asian Journal of Research in Banking and Finance 6(6): 10-16.
• Gokce, Atilla and Ilkay Guler (2020). “Sag-yonlu ADF sinamalari ile Ankara ilinde konut balonu arastirmasi” [Right-sided ADF tests and housing bubble research in Ankara province]. Ankara Haci Bayram Veli Universitesi Iktisadi ve Idari Bilimler Fakultesi Dergisi Special Issue: 94-116.
• Gulcan, Nazligul, Namika Boyacioglu and Arife Ozdemir (2021). “Investigation of speculative bubbles in financial markets: The example of foreign exchange market”. Suleyman Demirel University Visionary Journal 12(29): 176-187.
• Hepkorucu, Atilla and Sevdanur Genc (2019). “Kripto para degerleri icin spekulatif fiyat balonlarinin test edilmesi: Bitcoin uzerine bir uygulama” [Testing speculative price bubbles for cryptocurrencies: An application on bitcoin]. Veri Bilimi Dergisi 2(1): 44-50.
• Hu, Yang and Les Oxley (2016). “Are there bubbles in exchange rates? Some new evidence from G10 and emerging markets countries”. University of Waikato Working Papers in Economics 16/05: 1-33.
• Hu, Yang and Les Oxley (2018). “Bubble contagion: Evidence from Japan’s asset price bubble of the 1980-90s”. Journal of the Japanese and International Economies 50(c): 89-95.
• Iskenderoglu, Omer and Saffet Akdag (2019). “Turkiye’de reel konut fiyatlarinda balonlarin varligi uzerine uygulamali bir analiz” [An applied analysis on the existence of bubbles in real house prices in Turkey]. Business and Economics Research Journal 10(5): 1085-1093.
• Jiang, Chun, Yi Wang, Tsangyoa Chang and Chi-Wei Su (2015). “Are there bubbles in Chinese RMB–dollar exchange rate? Evidence from generalized sup ADF tests”. Applied Economics 47(56): 6120-6135.
• Kansu, Aydan (2011). Konut Balonundan Finansal Krize: ABD Mortgage Krizi [From the Housing Bubble to the Financial Crisis: The US Mortgage Crisis]. Istanbul: Scala Yayincilik.
• Kilic, Yunus (2020). “Finansal piyasalarda balon varliginin test edilmesi: BRICS-T ulkeleri ornegi”. Journal of Banking and Capital Markets Research 4(9): 11-22.
• Korkmaz, Ozge, Deniz Erer and Elif Erer (2016). “Alternatif yatirim araclarinda ortaya cikan balonlar Turkiye hisse senedi piyasasini etkiliyor mu? BIST 100 uzerine bir uygulama” [Do the bubbles emerging in alternative investment instruments affect the Turkish stock market? An application on BIST 100]. BDDK Bankacilik ve Finansal Piyasalar Dergisi 10(2): 29-61.
• Landgraf, Nikolaus (2016). “Testing for multiple bubbles in asset prices”. Research in Business and Economics 1(1): 1-24.
• Lind, Hans (2009). “Price bubbles in housing markets: Concept, theory and indicators”. International Journal of Housing Markets and Analysis 2(1): 78-90.
• Malkiel, Burton G. (2010). Bubbles in asset prices. CEPS Working Paper No. 200, Princeton University.
• Mete, Sefa, Ayben Koy and Ersoy Hicabi (2019). “Kriptoparalarda fiyat balonu incelemesi” [Price bubble review in cryptocurrencies]. BDDK Bankacilik ve Finansal Piyasalar Dergisi 13(1): 105-120.
• Pavlidis, Efthymios G., Ivan Paya and David Peel (2017). “Testing for speculative bubbles using spot and forward prices”. International Economic Review 58(4): 1191-1226.
• Phillips, Peter C. B., Yangru Wu and Jun Yu (2011). “Explosive behavior in the 1990s NASDAQ: When did exuberance escalate asset values?”. International Economic Review 52(1): 201–226.
• Phillips, Peter C. B., Shuping Shi and Jun Yu (2015). “Testing for multiple bubbles: Historical episodes of exuberance and collapse in the S&P 500”. International Economic Review 56(4): 1043-1077.
• Rasekhi, Saeed, Zahra M. Elmi and Milad Shahrazi (2017). “Testing for multiple bubbles in Iranian foreign exchange market: The Application of RTADF unit root tests”. The Journal of Economic Modeling Research 7 (27): 7-39.
• Shi, Shuping, Abbas Valadkhani, Russell Smyth and Farshid Vahid (2016). “Dating the timeline of house price bubbles in Australian capital cities”. Economic Record 92(299): 590-605.
• Su, Chi-Wei, Zheng-Zheng Li, Ran Tao and Deng-Kui Si (2018). “Testing for multiple bubbles in Bitcoin markets: A generalized sup ADF test”. Japan and the World Economy 46(C): 56-63.
• Sahin, Eyyup E. (2020). “Kripto para fiyatlarinda balon varliginin tespiti: Bitcoin, IOTA ve ripple ornegi”. Selcuk Universitesi Sosyal Bilimler Enstitusu Dergisi 43: 62-69.
• Wei, Deng (2017). “Price bubbles in bitcoin: Evidence, causes and implications”. Journal of Shanghai University of Finance and Economics 19(2): 50-62.
• Zeren, Feyyaz and Oylum S. Erguzel (2015). “Testing for bubbles in the housing market: Further evidence from Turkey”. Financial Studies 19(1): 40-52.
• Zeren, Feyyaz and Sinan Esen (2018). “Gelecegin para birimi ya da sadece bir balon: Bitcoin” [The currency of the future or just a bubble: Bitcoin]. Balikesir Universitesi Sosyal Bilimler Enstitusu Dergisi 21(39): 433-448.