A1043
Title: Residual based consistent bubble detection
Authors: Leopold Soegner - Institute for Advanced Studies (Austria) [presenting]
Martin Wagner - University of Klagenfurt, Bank of Slovenia and Institute for Advanced Studies, Vienna (Austria)
Abstract: Consistent testing and monitoring procedures are presented for detecting bubbles, defined as episodes of mildly explosive behavior, based on residuals from estimated equilibrium relationships. Under the null these relationships correspond to cointegrating relationships, whereas the errors are mildly explosive under the bubble alternative. The goal of the procedures is to detect transitions in both directions, based on backward sup ADF statistics. This monitoring procedure is used to investigate arbitrage parities, such as the Covered Interest Rate Parity and the Triangular Arbitrage Parity.
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