Testing for Speculative Bubbles Using Spot and Forward Prices

Pavlidis, Efthymios; Paya, Iván; Peel, David

doi:10.1111/iere.12249

Cited by 37 publications

(42 citation statements)

References 112 publications

(170 reference statements)

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“…In general, Bonferroni corrections lead to conservative tests. However, simulation results in Pavlidis, Paya, and Peel () indicate that the IVX method still performs comparably or better than recursive unit root tests.…”

Section: Econometric Methods and Technical Detailsmentioning

confidence: 99%

“…In the absence of speculative bubbles, under rational expectations and risk neutrality, the Efficient Market Hypothesis (EMH) postulates that the expected spot price is an unbiased predictor of the actual spot price so that the slope coefficient in is zero. Pavlidis, Paya, and Peel () show that this prediction fails in the presence of an ongoing bubble. By letting fundamentals follow a random walk, they obtain the following expression for the plim of the slope coefficient

plim {\overset{β}{true}}_{n} = \frac{{(1 + r)}^{n} (\frac{1}{π^{n}} - 1)}{{(1 + r)}^{n} - 1} > 0 = β^{EMH} .

…”

Section: Theoretical Frameworkmentioning

confidence: 99%

“…Pavlidis, Paya, and Peel () focus on the time series properties of the difference between future spot prices and market expectations as proxied by futures prices. However, using the same rationale as above, it is easy to show that the presence of periodically collapsing bubbles will also create a wedge between expectations for

S_{t}

made at different time points in the past.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

“…Furthermore, this test is accompanied by a date-stamping strategy that permits the identification of the exact periods of market exuberance. With regard to testing the unbiasedness hypothesis, we adopt the rolling-window approach of Pavlidis, Paya, and Peel (2017). This approach consists of sequentially estimating predictive regressions and drawing statistical inference using the IVX instrumentation method of Phillips andMagdalinos (2009), Phillips andLee (2013), and Kostakis, Magdalinos, and Stamatogiannis (2015).…”

mentioning

confidence: 99%

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Using Market Expectations to Test for Speculative Bubbles in the Crude Oil Market

Pavlidis¹,

Paya²,

Peel³

2018

J of Money Credit Banking

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The wide fluctuations of oil prices from 2003 to 2008 have attracted the interest of academics and policymakers. A popular view is that these fluctuations were caused by speculative bubbles due to the increased financialization of oil futures markets. This hypothesis, however, is difficult to examine since the fundamental price of oil is unobservable and, therefore, econometric evidence in favor of bubbles may actually be due to misspecified market fundamentals. In this paper, we extend two recently proposed methodologies for bubble detection that alleviate this problem by using market expectations of future prices. Both methodologies provide no evidence of speculative bubbles.

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Section: Econometric Methods and Technical Detailsmentioning

confidence: 99%

plim {\overset{β}{true}}_{n} = \frac{{(1 + r)}^{n} (\frac{1}{π^{n}} - 1)}{{(1 + r)}^{n} - 1} > 0 = β^{EMH} .

…”

Section: Theoretical Frameworkmentioning

confidence: 99%

S_{t}

made at different time points in the past.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

mentioning

confidence: 99%

See 2 more Smart Citations

Using Market Expectations to Test for Speculative Bubbles in the Crude Oil Market

Pavlidis¹,

Paya²,

Peel³

2018

J of Money Credit Banking

Self Cite

View full text Add to dashboard Cite

show abstract

“…Frenkel (1980), Taylor and McMahon (1988), and Michael, Nobay, and Peel (1997), inter alia, examined the validity of purchasing power parity. Pavlides, Paya, and Peel (2017) employed spot and forward prices in a new test for speculative bubbles, whereas Webb (1986) investigated the relationship between fiscal news and inflationary expectations, employing exchange rate data. Pavlides, Paya, and Peel (2017) employed spot and forward prices in a new test for speculative bubbles, whereas Webb (1986) investigated the relationship between fiscal news and inflationary expectations, employing exchange rate data.…”

Section: Introductionmentioning

confidence: 99%

Consistency of two major data sources for exchange rates in the interwar period and further evidence on the behaviour of exchange rates during hyperinflations

Peel

Spiru

2018

Int. J Fin Econ

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We exploit a rich but rather neglected source of data, The Commercial and Financial Chronicle, to shed light on the behaviour of daily and weekly exchange rates throughout several interwar hyperinflation episodes, paying special attention to the case of Germany. The purpose of our analysis is fourfold: First, we investigate the consistency of exchange rate data by comparing the rates available from The Commercial and Financial Chronicle at daily frequency with those provided by Einzig (1937). Although Einzig is a widely used source, the daily rates of the currencies of countries that witnessed episodes of hyperinflation during the interwar period, reported in The Chronicle, have not been examined previously. Second, we scrutinize the commentaries offered by The Chronicle to shed light on the impact of news on the behaviour of the German mark–U.S. dollar exchange rate over the interwar German hyperinflation and to check whether the narrative analysis provided therein is consistent with formal econometric analyses in dating when the probability of monetary reform became salient. This is crucial for the interpretation of the findings reported by previous studies of the German hyperinflation. Third, we focus on the commentaries that provide evidence on the volume of trade in German marks and on whether the quotations of the exchange rate of the mark against the U.S. dollar were purely notional in the final stages of the hyperinflation. Fourth, for the first time, we examine the behaviour of the real exchange rate of the German mark after the 1923 stabilization episode using data at weekly frequency.

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Do stock price bubbles correlate between China and Pakistan? An inquiry of pre‐ and post‐Chinese investment in Pakistani capital market under China‐Pakistan Economic Corridor regime

et al. 2019

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This paper examines the existence and coincidence of pre‐ and‐post stock price multiple bubbles in Chines and Pakistani capital markets under China Pakistan Economic Corridor regime using generalized supremum augmented Dickey–Fuller (GSADF) test with weekly closing prices for the period 2013–2018 for different market indices of Pakistan Stock Exchange (PSX), Shanghai Stock Exchange, and Shenzhen Stock Exchange. Empirical results depict that multiple stock bubbles exist in PSX at the end of 2016 and as well as in Chinese stock markets in the mid of 2014–2015 and these stock price bubbles are correlated between Pakistan and China. The present study is expected to be pioneer in its nature to apply GSADF for the identification of multiple stock bubbles in emerging stock markets of Pakistan and China which can be further used for comparison of stock bubbles in other regional markets such as BRICS or SAARC regions.

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Testing for Speculative Bubbles Using Spot and Forward Prices

Cited by 37 publications

References 112 publications

Using Market Expectations to Test for Speculative Bubbles in the Crude Oil Market

Using Market Expectations to Test for Speculative Bubbles in the Crude Oil Market

Consistency of two major data sources for exchange rates in the interwar period and further evidence on the behaviour of exchange rates during hyperinflations

Do stock price bubbles correlate between China and Pakistan? An inquiry of pre‐ and post‐Chinese investment in Pakistani capital market under China‐Pakistan Economic Corridor regime

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