Testing for an Explosive Bubble using High-Frequency Volatility
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arXiv
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| Autori principali: | , , |
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| Natura: | Preprint |
| Pubblicazione: |
2024
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| _version_ | 1866911865095847936 |
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| author | Boswijk, H. Peter Yu, Jun Zu, Yang |
| author_facet | Boswijk, H. Peter Yu, Jun Zu, Yang |
| contents | Based on a continuous-time stochastic volatility model with a linear drift, we develop a test for explosive behavior in financial asset prices at a low frequency when prices are sampled at a higher frequency. The test exploits the volatility information in the high-frequency data. The method consists of devolatizing log-asset price increments with realized volatility measures and performing a supremum-type recursive Dickey-Fuller test on the devolatized sample. The proposed test has a nuisance-parameter-free asymptotic distribution and is easy to implement. We study the size and power properties of the test in Monte Carlo simulations. A real-time date-stamping strategy based on the devolatized sample is proposed for the origination and conclusion dates of the explosive regime. Conditions under which the real-time date-stamping strategy is consistent are established. The test and the date-stamping strategy are applied to study explosive behavior in cryptocurrency and stock markets. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2405_02087 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Testing for an Explosive Bubble using High-Frequency Volatility Boswijk, H. Peter Yu, Jun Zu, Yang Econometrics Methodology Based on a continuous-time stochastic volatility model with a linear drift, we develop a test for explosive behavior in financial asset prices at a low frequency when prices are sampled at a higher frequency. The test exploits the volatility information in the high-frequency data. The method consists of devolatizing log-asset price increments with realized volatility measures and performing a supremum-type recursive Dickey-Fuller test on the devolatized sample. The proposed test has a nuisance-parameter-free asymptotic distribution and is easy to implement. We study the size and power properties of the test in Monte Carlo simulations. A real-time date-stamping strategy based on the devolatized sample is proposed for the origination and conclusion dates of the explosive regime. Conditions under which the real-time date-stamping strategy is consistent are established. The test and the date-stamping strategy are applied to study explosive behavior in cryptocurrency and stock markets. |
| title | Testing for an Explosive Bubble using High-Frequency Volatility |
| topic | Econometrics Methodology |
| url | https://arxiv.org/abs/2405.02087 |