Time-Transformed Test for Bubbles under Non-stationary Volatility

Abstract This paper is devoted to testing for bubbles under time-varying non-stationary volatility. Because the limiting distribution of the seminal Phillips, Wu, and Yu (2011) test depends on the variance function and usually requires a bootstrap implementation under heteroskedasticity, we construc...

Full description

Saved in:
Bibliographic Details
Published in:Journal of financial econometrics 2023-08, Vol.21 (4), p.1282-1307
Main Authors: Kurozumi, Eiji, Skrobotov, Anton, Tsarev, Alexey
Format: Article
Language:English
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Abstract This paper is devoted to testing for bubbles under time-varying non-stationary volatility. Because the limiting distribution of the seminal Phillips, Wu, and Yu (2011) test depends on the variance function and usually requires a bootstrap implementation under heteroskedasticity, we construct the test based on a deformation of the time domain. The proposed test is asymptotically pivotal under the null hypothesis and its limiting distribution coincides with that of the standard test under homoskedasticity, so that the test does not require computationally extensive methods for inference. Appealing finite sample properties are demonstrated through Monte-Carlo simulations. An empirical application demonstrates that the upsurge behavior of cryptocurrency time series in the middle of the sample is partially explained by the volatility change.
ISSN:1479-8409
1479-8417
DOI:10.1093/jjfinec/nbac004