Testing bubbles based on modified PWY method

doi:10.52396/JUST-2020-1138

Journal of University of Science and Technology of China ›› 2021, Vol. 51 ›› Issue (1): 43-52.DOI: 10.52396/JUST-2020-1138

• Management Science and Engineering • Previous Articles Next Articles

Testing bubbles based on modified PWY method

YE Wuyi^*, LIU Weibo

Department of statistics and Finance,School of management, University of Science and Technology of China, Hefei 230026, China

Online:2021-01-31 Published:2021-05-27
Contact: *E-mail: wyye@ustc.edu.cn
About author:Ye Wuyi is an associate professor of school of management at University of Science and Technology of China (USTC). He received the PhD degree of Management Science and Engineering at USTC in 2016. Hisresearchfocuseson financial engineering and financial risk management.
Liu Weibo is a Master degree of University of Science and Technology of China (USTC), studying at department of statistics and Finance, School of management. Hegraduatedfromthe school of the gifted young at USTC. His research field is financial risk and financial bubbles.

Abstract

Abstract: In recent years, the identification and inspection of bubbles has appeared as an important research topic in the financial field. ADF testing method and the PWY alternative method are commonly used, with serial correlation in high-frequency financial time series. In order to remove the influence of serial correlation and be able to test the situation of multiple bubbles at the same sample period, we have made a correction to the PWY alternative method with serial correlation. The BSADF method is used to obtain the statistical sequence, and the corresponding modified critical value sequence is given based on the simulation one. According to the Shanghai Stock Index from 2000 to 2019, an empirical study was conducted based on the GSADF and the revised PWY method to identify and test the bubble phenomenon. The empirical results show that three bubbles appeared between 2000 and 2019, which is in line with the actual financial market conditions, and the traditional PWY method cannot detect all bubbles. Therefore, the GSADF and the modified PWY method given in this article can find bubbles in time and provide some guidance to identify market risks and prevent financial crises.

Key words: GSADF method, BSADF method, Modified critical value sequence, Examination and detection of bubbles

CLC Number:

O643.36

YE Wuyi, LIU Weibo. Testing bubbles based on modified PWY method[J]. Journal of University of Science and Technology of China, 2021, 51(1): 43-52.

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Testing bubbles based on modified PWY method

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