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Identifying asset pricing bubbles: Testing for explosive behavior in the NASDAQ and STOXX 600 Europe Technology indices

Smits Van Oyen, Tim LU and Elmer, Mathias LU (2016) NEKN02 20161
Department of Economics
Abstract
A forward recursive estimation method is used to examine stock market data on unit root against explosive behavior as an indication of financial exuberance. Through specific dividend-stock pricing modeling, the recursive implementation of a right-tailed ADF test allows for directly testing the price index series on explosive behavior and its corresponding dividend series on non-explosive behavior. In addition, the forward recursive estimation method enables us to date stamp periodically collapsing bubbles. Empirically applied, we find the dotcom bubble of the late 90's in the EU technology index (STOXX 600 Europe Technology) which is in line with financial exuberance on the NASDAQ. Moreover, both indices demonstrate explosive behavior... (More)
A forward recursive estimation method is used to examine stock market data on unit root against explosive behavior as an indication of financial exuberance. Through specific dividend-stock pricing modeling, the recursive implementation of a right-tailed ADF test allows for directly testing the price index series on explosive behavior and its corresponding dividend series on non-explosive behavior. In addition, the forward recursive estimation method enables us to date stamp periodically collapsing bubbles. Empirically applied, we find the dotcom bubble of the late 90's in the EU technology index (STOXX 600 Europe Technology) which is in line with financial exuberance on the NASDAQ. Moreover, both indices demonstrate explosive behavior around the financial crisis in 2008. Lastly, it is found that the model in smaller subsamples is highly sensitive to the initial starting point. (Less)
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author
Smits Van Oyen, Tim LU and Elmer, Mathias LU
supervisor
organization
course
NEKN02 20161
year
type
H1 - Master's Degree (One Year)
subject
keywords
Asset pricing bubble, explosive behavior, right-tailed ADF, forward recursive regression
language
English
id
8876245
date added to LUP
2016-06-13 14:08:28
date last changed
2016-06-13 14:08:28
@misc{8876245,
  abstract     = {A forward recursive estimation method is used to examine stock market data on unit root against explosive behavior as an indication of financial exuberance. Through specific dividend-stock pricing modeling, the recursive implementation of a right-tailed ADF test allows for directly testing the price index series on explosive behavior and its corresponding dividend series on non-explosive behavior. In addition, the forward recursive estimation method enables us to date stamp periodically collapsing bubbles. Empirically applied, we find the dotcom bubble of the late 90's in the EU technology index (STOXX 600 Europe Technology) which is in line with financial exuberance on the NASDAQ. Moreover, both indices demonstrate explosive behavior around the financial crisis in 2008. Lastly, it is found that the model in smaller subsamples is highly sensitive to the initial starting point.},
  author       = {Smits Van Oyen, Tim and Elmer, Mathias},
  keyword      = {Asset pricing bubble,explosive behavior,right-tailed ADF,forward recursive regression},
  language     = {eng},
  note         = {Student Paper},
  title        = {Identifying asset pricing bubbles: Testing for explosive behavior in the NASDAQ and STOXX 600 Europe Technology indices},
  year         = {2016},
}