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    Steady-state distributions for models of bubbles: their existence and econometric implications

    Knight, J. and Satchell, Stephen E. and Srivastava, N. (2012) Steady-state distributions for models of bubbles: their existence and econometric implications. Working Paper. Birkbeck College, University of London, London, UK.

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    Abstract

    The purpose of this paper is to examine the properties of bubbles in the light of steady state results for threshold auto-regressive (TAR) models recently derived by Knight and Satchell (2011). We assert that this will have implications for econometrics. We study the conditions under which we can obtain a steady state distribution of asset prices using our simple model of bubbles based on our particular definition of a bubble. We derive general results and further extend the analysis by considering the steady state distribution in three cases of a (I) a normally distributed error process, (II) a non normally (exponentially) distributed steady-state process and (III) a switching random walk with a fairly general i.i.d error process We then examine the issues related to unit root testing for the presence of bubbles using standard econometric procedures. We illustrate as an example, the market for art, which shows distinctly bubble-like characteristics. Our results shed light on the ubiquitous finding of no bubbles in the econometric literature.

    Metadata

    Item Type: Monograph (Working Paper)
    Keyword(s) / Subject(s): Bubbles, Asset prices, Steady state, Non-linear time series, TAR Models
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Administrator
    Date Deposited: 11 Jan 2013 12:00
    Last Modified: 17 Apr 2013 12:33
    URI: http://eprints.bbk.ac.uk/id/eprint/5951

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