Nonlinearities and tests of asset price bubbles

Vipin Arora, Shuping Shi*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)


We find that incorporating nonlinearities into tests of asset price bubbles has important consequences for the results. We show this by comparing four tests using S&P 500 data. Our results indicate that the modification which incorporates nonlinear probabilities outperforms the other models in terms of select information criteria and a likelihood-based test. In addition, the coefficients associated with the nonlinear terms have the expected sign and the estimated probabilities display larger movements during the late 1910s, early 1930s/1940s, and the 2000s.

Original languageEnglish
Pages (from-to)1421-1433
Number of pages13
JournalEmpirical Economics
Issue number4
Publication statusPublished - 1 Jun 2016


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