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Testing for Co‐explosive Behaviour in Financial Time Series
Author(s) -
Evripidou Andria C.,
Harvey David I.,
Leybourne Stephen J.,
Sollis Robert
Publication year - 2022
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12487
Subject(s) - explosive material , series (stratigraphy) , econometrics , autoregressive model , test statistic , heteroscedasticity , mathematics , autoregressive integrated moving average , statistic , set (abstract data type) , sample (material) , time series , statistics , computer science , statistical hypothesis testing , thermodynamics , physics , geology , chemistry , paleontology , organic chemistry , programming language
This article proposes a test to determine if two price series that each contain an explosive autoregressive regime consistent with the presence of a bubble are related in the sense that a linear combination of them is integrated of order zero. We refer to such a phenomenon as ‘co‐explosive behaviour’, and propose a test based on a stationarity testing framework. The test allows the explosive episode in one series to lead (or lag) that in the other by a number of time periods. We establish the asymptotic properties of the test statistic and propose a wild bootstrap procedure for obtaining critical values that are robust to heteroskedasticity. Simulations show that the proposed test has good finite sample size and power performance. An empirical application to detect whether co‐explosive behaviour exists among a set of precious and non‐ferrous metals is presented.