Abstract
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 language | English |
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Pages (from-to) | 1421-1433 |
Number of pages | 13 |
Journal | Empirical Economics |
Volume | 50 |
Issue number | 4 |
DOIs | |
Publication status | Published - 1 Jun 2016 |