Explosive Behavior in the 1990s Nasdaq: When Did Exuberance Escalate Asset Values?

Peter Phillips, Yangru Wu () and Jun Yu

Working Papers from Singapore Management University, Sim Kee Boon Institute for Financial Economics

Abstract: A recursive test procedure is suggested that provides a mechanism for testing explosive behavior, date-stamping the origination and collapse of economic exuberance, and providing valid con¡¥dence intervals for explosive growth rates. The method involves the recursive im- plementation of a right-side unit root test and a sup test, both of which are easy to use in practical applications, and some new limit theory for mildly explosive processes. The test procedure is shown to have discriminatory power in detecting periodically collapsing bubbles, thereby overcoming a weakness in earlier applications of unit root tests for economic bubbles. An empirical application to Nasdaq stock price index in the 1990s provides con¡¥rmation of ex- plosiveness and date-stamps the origination of ¡¥nancial exuberance to mid -1995, prior to the famous remark in December 1996 by Alan Greenspan about irrational exuberance in ¡¥nancial market, thereby giving the remark empirical content.

Keywords: Explosive root; irrational exuberance; mildly explosive process; Nasdaq bubble; periodically collapsing bubble; sup test; unit root test (search for similar items in EconPapers)
JEL-codes: C22 G10 (search for similar items in EconPapers)
Pages: 36 Pages
Date: 2009-04
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Published in SMU-SKBI CoFie Working Paper

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http://www.smu.edu.sg/institutes/skbife/downloads/ ... 20Asset%20Values.pdf

Related works:
Journal Article: EXPLOSIVE BEHAVIOR IN THE 1990s NASDAQ: WHEN DID EXUBERANCE ESCALATE ASSET VALUES? (2011)
Working Paper: Explosive Behavior in the 1990s Nasdaq: When Did Exuberance Escalate Asset Values? (2009)
Working Paper: Explosive Behavior in the 1990s Nasdaq: When Did Exuberance Escalate Asset Values? (2009)
Working Paper: Explosive Behavior in the 1990s Nasdaq: When Did Exuberance Escalate Asset Values? (2009)
Working Paper: Explosive Behavior in the 1990s Nasdaq: When Did Exuberance Escalate Asset Values? (2007)
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