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Testing Explosive Bubble for Eurozone Exchange Rate in the COVID-19 Outbreak: Evidence from Recursive Right-Tailed Tests

Yıl 2020, Cilt: 1 Sayı: 1, 32 - 45, 31.12.2020

Öz

This paper investigates the presence of explosive bubbles in financial markets using daily data (5-day weeks) of the closing rate of EUR/USD exchange in the COVID-19 outbreak, covering the period from December 2, 2019 to December 4, 2020. The bubble behavior in the closing rate of EUR/USD exchange is measured by two distinct right-tailed testing procedures. In this vein, the Supremum Augmented Dickey-Fuller (SADF) test developed by Phillips et al. (2011) and the Generalized Supremum Augmented Dickey-Fuller (GSADF) test developed by Phillips et al. (2015) are used to identify multiple bubble periods. The empirical findings imply that positive bubbles are a common feature of the closing rate of EUR/USD exchange in the COVID-19 outbreak. As a critical year, 2020 is identified to point out the importance of explosive bubble behavior, after which estimated statistics by two types of unit-root test procedures provide evidence of ongoing financial instability.

Kaynakça

  • AFŞAR, M., AFŞAR, A., and DOĞAN, E. (2019). Döviz Balonlarının Tespitine Yönelik Bir Analiz: Türkiye Örneği. Erciyes Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 54, 447-460.
  • AHMED, E., ROSSER B. J., and UPPAL, J. Y. (2016). Financialization and Speculative Bubbles - International Evidence. CAMA Working Paper, No. 6/2017, 1-26.
  • BALCOMBE, K. and FRASER, I. (2017). Do Bubbles Have an Explosive Signature in Markov Switching Models? Economic Modelling, 66, 81-100.
  • BLANCHARD, O. (1979). Speculative Bubbles, Crashes and Rational Expectations. Economic Letters, 3(4), 387-389.
  • BLANCHARD, O. and WATSON, M. (1982). Bubbles, Rational Expectations and Financial Markets. In: Wachtel, P. (Ed.), Crises in the Economic and Financial Structure. Lexington, MA: D.C. Heath and Company, 295–316.
  • BLANCHARD, O. and FISHER, S. (1989). Lectures on Macroeconomics. Cambridge, Massachusetts: MIT Press.
  • BROOKS, C. and KATSARIS, A. (2005). A Three-Regime Model of Speculative Behaviour: Modelling the Evolution of the S&P 500 Composite Index. Economic Journal, 115(505), 767–797.
  • DAS, B. A. (2017). The Stock Market Volatility and Regime Changes: A Test in Econometrics. Global Journal of Management and Business Research: C Finance, 17(3), 1-4.
  • DEACON, L., ASSCHE V. K., Papineau, J. and Gruezmacher, M. (2018). Speculation, Planning, and Resilience: Case Studies from Resource-Based Communities in Western Canada. Futures, 104, 37-46.
  • DIBA, B. T. and GROSSMAN, H. I. (1988a). The Theory of Rational Bubbles in Stock Prices. Economic Journal, 98(392), 746–754.
  • DIBA, B. T. and GROSSMAN, H. I., (1988b). Explosive Rational Bubbles in Stock Prices? American Economic Review, 78(3), 520–530.
  • DRIFFILL, J. and SOLA, M. (1998). Intrinsic Bubbles and Regime-Switching. Journal of Monetary Economics, 42(2), 357-373.
  • ENGSTED, T. (1993). Testing for Rational Inflationary Bubbles: The Case of Argentina, Brazil and Israel. Applied Economics, 25(5), 667–674.
  • EVANS, G. W. (1986). A Test for Speculative Bubbles in the Sterling-Dollar Exchange Rate: 1981–84. American Economic Review, 76(4), 621–636.
  • EVANS, G. W. (1991). Pitfalls in Testing for Explosive Bubbles in Asset Prices. American Economic Review, 81(4), 922–930.
  • FUNKE, M., HALL, S. and SOLA, M. (1994). Rational Bubbles During Poland’s Hyperinflation: Implications and Empirical Evidence. European Economic Review, 38(6), 1257–1276.
  • GEUDER, J., KINATEDER, H. and WAGNER, N. F. (2019). Cryptocurrencies as Financial Bubbles: The Case of Bitcoin. Finance Research Letters, 31, 179-184.
  • GILLES, C. and LEROY, S. F. (1992). Bubbles and Charges. International Economic Review, 33(2), 323-339.
  • GROVER, R. and GROVER C. (2014). Property Bubbles – A Transitory Phenomenon. Journal of Property Investment & Finance, 32(2), 208-222.
  • HALL, S. G., PSARADAKIS, Z. and SOLA, M. (1999). Detecting Periodically Collapsing Bubbles: A Markov-Switching Unit Root Test. Journal of Applied Econometrics, 14(2), 143–154.
  • HAMILTON, J. (1994). Time Series Analysis. Princeton: Princeton University Press.
  • HART, O. D. and KREPS, D. M. (1986). Price Destabilizing Speculation. Journal of Political Economy, 94(5), 927- 952.
  • KEYNES, J. M. (1936). The General Theory of Employment, Interest, and Money. New York: Macmillan Publishers.
  • KINDLEBERGER, C. P. and ALIBER, R. (2005). Manias, Panics, and Crashes. 5th ed. New York: Wiley.
  • LIU, X., MARGARITIS, D. and WANG, P. (2012). Stock Market Volatility and Equity Returns: Evidence from a Two-State Markov-Switching Model with Regressors. Journal of Empirical Finance, 19(4), 483–496.
  • LUCEY, B. M. and O’CONNER, F. A. (2013). Do Bubbles Occur in the Gold Price? An Investigation of Gold Lease Rates and Markov Switching Models. Borsa Istanbul Review, 13, 53–63.
  • MALDONADO, W. L., TOURINHO, O. A. F. and VALLI, M. (2012). Exchange Rate Bubbles: Fundamental Value Estimation and Rational Expectations Test. Journal of International Money and Finance, 31(5), 1033-1059.
  • MALKIEL, B. G. (2010). Bubbles in Asset Prices. CEPS Working Paper, No. 200, 1-21.
  • MARTIN, R. (2002). Financialization of Daily Life. Philadelphia: Temple University Press.
  • MEESE, R. A. (1986). Testing for Bubbles in Exchange Markets: A Case of Sparkling Rates? Journal of Political Economy, 94(2), 345–373.
  • MINSKY, H. P. (1992). The Financial Instability Hypothesis. The Jerome Levy Economics Institute Working Paper No. 74. Available at SSRN: http://ssrn.com/abstract=161024.
  • NASSEH, A. and STRAUSS J. (2004). Stock Prices and the Dividend Discount Model: Did Their Relation Break Down in the 1990s? Quarterly Review of Economics and Finance, 44(2), 191–207.
  • OBSTFELD, M. and ROGOFF, K. (1983). Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out? Journal of Political Economy, 91(1), 675-687.
  • PHILLIPS, P. C. B. and SHI, S-P. (2018). Financial Bubble Implosion and Reverse Regression. Econometric Theory, 34(4), 705–753.
  • PHILLIPS, P. C. B. and SHI, S-P. (2020). Real Time Monitoring of Asset Markets: Bubbles and Crises. In: H. D. Vinod and C. R. Rao (Eds.), Handbook of Statistics: Financial, Macro and Micro Econometrics Using R, vol. 42, 61–80, Amsterdam: Elsevier.
  • PHILLIPS, P. C. B., WU, Y. and YU, J. (2011). Explosive Behavior in the 1990s Nasdaq: When Did Exuberance Escalate Asset Values? International Economic Review, 52(1), 201–226.
  • PHILLIPS, P. C. B., SHI, S-P. and YU, J. (2015). Testing for Multiple Bubbles: Historical Episodes of Exuberance and Collapse in the S&P 500. International Economic Review, 56(4), 1043–1078.
  • RAPPOPORT, P. and WHITE, E. N. (1994). Was the Crash of 1929 Expected? American Economic Review, 84(1), 271–281.
  • ROCHE, M. J. (2001). Fads versus Fundamentals in Farmland Prices: Comment. American Journal of Agricultural Economics, 83(4), 1074–1077.
  • SHI, S-P. (2010). Bubbles or Volatility: A Markov-Switching Unit Root Test with Regime-Varying Error Variance. ANU Working Papers in Economics and Econometrics 2010-524, Australian National University, College of Business and Economics, School of Economics.
  • SHI, S-P. (2013). Specification Sensitivities in the Markov-Switching Unit Root Test for Bubbles. Empirical Economics, 45(2), 697-713.
  • SHILLER, R. J. (1978). Rational Expectations and the Dynamic Structure of Macroeconomic Models: A Critical Review. Journal of Monetary Economics, 4(1), 1-44.
  • SHILLER, R. J. (1981). Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends? American Economic Review, 71(3), 421-436.
  • SORNETTE, D. and CAUWELS, P. (2014). Financial Bubbles: Mechanisms and Diagnostics. Available at: https://arxiv.org/ftp/arxiv/papers/1404/1404.2140.pdf.
  • TIROLE, J. (1985). Asset Bubbles and Overlapping Generations. Econometrica, 53(6), 1499–1528.
  • Van NORDEN, S. (1996). Regime Switching as a Test for Exchange Rate Bubbles. Journal of Applied Econometrics, 11(3), 219–251.
  • Van NORDEN, S. and SCHALLER, H. (1993). The Predictability of Stock Market Regime: Evidence from the Toronto Stock Exchange. Review of Economics and Statistics, 75(3), 505–510.
  • WEST, K. (1987). A Specification Test for Speculative Bubbles. Quarterly Journal of Economics, 102(3), 553–580.
  • WU, Y. (1995). Are There Rational Bubbles in Foreign Exchange Markets? Evidence from an Alternative Test. Journal of International Money and Finance, 14(1), 27-46.
Yıl 2020, Cilt: 1 Sayı: 1, 32 - 45, 31.12.2020

Öz

Kaynakça

  • AFŞAR, M., AFŞAR, A., and DOĞAN, E. (2019). Döviz Balonlarının Tespitine Yönelik Bir Analiz: Türkiye Örneği. Erciyes Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 54, 447-460.
  • AHMED, E., ROSSER B. J., and UPPAL, J. Y. (2016). Financialization and Speculative Bubbles - International Evidence. CAMA Working Paper, No. 6/2017, 1-26.
  • BALCOMBE, K. and FRASER, I. (2017). Do Bubbles Have an Explosive Signature in Markov Switching Models? Economic Modelling, 66, 81-100.
  • BLANCHARD, O. (1979). Speculative Bubbles, Crashes and Rational Expectations. Economic Letters, 3(4), 387-389.
  • BLANCHARD, O. and WATSON, M. (1982). Bubbles, Rational Expectations and Financial Markets. In: Wachtel, P. (Ed.), Crises in the Economic and Financial Structure. Lexington, MA: D.C. Heath and Company, 295–316.
  • BLANCHARD, O. and FISHER, S. (1989). Lectures on Macroeconomics. Cambridge, Massachusetts: MIT Press.
  • BROOKS, C. and KATSARIS, A. (2005). A Three-Regime Model of Speculative Behaviour: Modelling the Evolution of the S&P 500 Composite Index. Economic Journal, 115(505), 767–797.
  • DAS, B. A. (2017). The Stock Market Volatility and Regime Changes: A Test in Econometrics. Global Journal of Management and Business Research: C Finance, 17(3), 1-4.
  • DEACON, L., ASSCHE V. K., Papineau, J. and Gruezmacher, M. (2018). Speculation, Planning, and Resilience: Case Studies from Resource-Based Communities in Western Canada. Futures, 104, 37-46.
  • DIBA, B. T. and GROSSMAN, H. I. (1988a). The Theory of Rational Bubbles in Stock Prices. Economic Journal, 98(392), 746–754.
  • DIBA, B. T. and GROSSMAN, H. I., (1988b). Explosive Rational Bubbles in Stock Prices? American Economic Review, 78(3), 520–530.
  • DRIFFILL, J. and SOLA, M. (1998). Intrinsic Bubbles and Regime-Switching. Journal of Monetary Economics, 42(2), 357-373.
  • ENGSTED, T. (1993). Testing for Rational Inflationary Bubbles: The Case of Argentina, Brazil and Israel. Applied Economics, 25(5), 667–674.
  • EVANS, G. W. (1986). A Test for Speculative Bubbles in the Sterling-Dollar Exchange Rate: 1981–84. American Economic Review, 76(4), 621–636.
  • EVANS, G. W. (1991). Pitfalls in Testing for Explosive Bubbles in Asset Prices. American Economic Review, 81(4), 922–930.
  • FUNKE, M., HALL, S. and SOLA, M. (1994). Rational Bubbles During Poland’s Hyperinflation: Implications and Empirical Evidence. European Economic Review, 38(6), 1257–1276.
  • GEUDER, J., KINATEDER, H. and WAGNER, N. F. (2019). Cryptocurrencies as Financial Bubbles: The Case of Bitcoin. Finance Research Letters, 31, 179-184.
  • GILLES, C. and LEROY, S. F. (1992). Bubbles and Charges. International Economic Review, 33(2), 323-339.
  • GROVER, R. and GROVER C. (2014). Property Bubbles – A Transitory Phenomenon. Journal of Property Investment & Finance, 32(2), 208-222.
  • HALL, S. G., PSARADAKIS, Z. and SOLA, M. (1999). Detecting Periodically Collapsing Bubbles: A Markov-Switching Unit Root Test. Journal of Applied Econometrics, 14(2), 143–154.
  • HAMILTON, J. (1994). Time Series Analysis. Princeton: Princeton University Press.
  • HART, O. D. and KREPS, D. M. (1986). Price Destabilizing Speculation. Journal of Political Economy, 94(5), 927- 952.
  • KEYNES, J. M. (1936). The General Theory of Employment, Interest, and Money. New York: Macmillan Publishers.
  • KINDLEBERGER, C. P. and ALIBER, R. (2005). Manias, Panics, and Crashes. 5th ed. New York: Wiley.
  • LIU, X., MARGARITIS, D. and WANG, P. (2012). Stock Market Volatility and Equity Returns: Evidence from a Two-State Markov-Switching Model with Regressors. Journal of Empirical Finance, 19(4), 483–496.
  • LUCEY, B. M. and O’CONNER, F. A. (2013). Do Bubbles Occur in the Gold Price? An Investigation of Gold Lease Rates and Markov Switching Models. Borsa Istanbul Review, 13, 53–63.
  • MALDONADO, W. L., TOURINHO, O. A. F. and VALLI, M. (2012). Exchange Rate Bubbles: Fundamental Value Estimation and Rational Expectations Test. Journal of International Money and Finance, 31(5), 1033-1059.
  • MALKIEL, B. G. (2010). Bubbles in Asset Prices. CEPS Working Paper, No. 200, 1-21.
  • MARTIN, R. (2002). Financialization of Daily Life. Philadelphia: Temple University Press.
  • MEESE, R. A. (1986). Testing for Bubbles in Exchange Markets: A Case of Sparkling Rates? Journal of Political Economy, 94(2), 345–373.
  • MINSKY, H. P. (1992). The Financial Instability Hypothesis. The Jerome Levy Economics Institute Working Paper No. 74. Available at SSRN: http://ssrn.com/abstract=161024.
  • NASSEH, A. and STRAUSS J. (2004). Stock Prices and the Dividend Discount Model: Did Their Relation Break Down in the 1990s? Quarterly Review of Economics and Finance, 44(2), 191–207.
  • OBSTFELD, M. and ROGOFF, K. (1983). Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out? Journal of Political Economy, 91(1), 675-687.
  • PHILLIPS, P. C. B. and SHI, S-P. (2018). Financial Bubble Implosion and Reverse Regression. Econometric Theory, 34(4), 705–753.
  • PHILLIPS, P. C. B. and SHI, S-P. (2020). Real Time Monitoring of Asset Markets: Bubbles and Crises. In: H. D. Vinod and C. R. Rao (Eds.), Handbook of Statistics: Financial, Macro and Micro Econometrics Using R, vol. 42, 61–80, Amsterdam: Elsevier.
  • PHILLIPS, P. C. B., WU, Y. and YU, J. (2011). Explosive Behavior in the 1990s Nasdaq: When Did Exuberance Escalate Asset Values? International Economic Review, 52(1), 201–226.
  • PHILLIPS, P. C. B., SHI, S-P. and YU, J. (2015). Testing for Multiple Bubbles: Historical Episodes of Exuberance and Collapse in the S&P 500. International Economic Review, 56(4), 1043–1078.
  • RAPPOPORT, P. and WHITE, E. N. (1994). Was the Crash of 1929 Expected? American Economic Review, 84(1), 271–281.
  • ROCHE, M. J. (2001). Fads versus Fundamentals in Farmland Prices: Comment. American Journal of Agricultural Economics, 83(4), 1074–1077.
  • SHI, S-P. (2010). Bubbles or Volatility: A Markov-Switching Unit Root Test with Regime-Varying Error Variance. ANU Working Papers in Economics and Econometrics 2010-524, Australian National University, College of Business and Economics, School of Economics.
  • SHI, S-P. (2013). Specification Sensitivities in the Markov-Switching Unit Root Test for Bubbles. Empirical Economics, 45(2), 697-713.
  • SHILLER, R. J. (1978). Rational Expectations and the Dynamic Structure of Macroeconomic Models: A Critical Review. Journal of Monetary Economics, 4(1), 1-44.
  • SHILLER, R. J. (1981). Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends? American Economic Review, 71(3), 421-436.
  • SORNETTE, D. and CAUWELS, P. (2014). Financial Bubbles: Mechanisms and Diagnostics. Available at: https://arxiv.org/ftp/arxiv/papers/1404/1404.2140.pdf.
  • TIROLE, J. (1985). Asset Bubbles and Overlapping Generations. Econometrica, 53(6), 1499–1528.
  • Van NORDEN, S. (1996). Regime Switching as a Test for Exchange Rate Bubbles. Journal of Applied Econometrics, 11(3), 219–251.
  • Van NORDEN, S. and SCHALLER, H. (1993). The Predictability of Stock Market Regime: Evidence from the Toronto Stock Exchange. Review of Economics and Statistics, 75(3), 505–510.
  • WEST, K. (1987). A Specification Test for Speculative Bubbles. Quarterly Journal of Economics, 102(3), 553–580.
  • WU, Y. (1995). Are There Rational Bubbles in Foreign Exchange Markets? Evidence from an Alternative Test. Journal of International Money and Finance, 14(1), 27-46.
Toplam 49 adet kaynakça vardır.

Ayrıntılar

Birincil Dil İngilizce
Konular Yöneylem
Bölüm Araştırma Makalesi
Yazarlar

Onur Özdemir Bu kişi benim 0000-0002-3804-0062

Yayımlanma Tarihi 31 Aralık 2020
Yayımlandığı Sayı Yıl 2020 Cilt: 1 Sayı: 1

Kaynak Göster

APA Özdemir, O. (2020). Testing Explosive Bubble for Eurozone Exchange Rate in the COVID-19 Outbreak: Evidence from Recursive Right-Tailed Tests. Journal of Sustainable Economics and Management Studies, 1(1), 32-45.

Journal of Sustainable Economics and Management Studies (ECOMAN)
2718-1065 (Printed ISSN) & 2791-8084 (Electronic ISSN)
ecoman@gelisim.edu.tr