Identification of Speculative Bubbles Using State-Space Models with Markov-Switching

37 Pages Posted: 12 Feb 2009

See all articles by Nael Al-Anaswah

Nael Al-Anaswah

affiliation not provided to SSRN

Bernd Wilfling

Westfälische Wilhelms-Universität

Date Written: January 30, 2009

Abstract

In this paper we use a state-space model with Markov-switching to detect speculative bubbles in stock-price data. Our two innovations are (1) to adapt this technology to the state-space representation of a well-known present-value stock-price model, and (2) to estimate the model via Kalman-filtering using a plethora of artificial as well as real-world data sets that are known to contain bubble periods. Analyzing the smoothed regime probabilities, we find that our technology is well suited to detecting stock-price bubbles in both types of data sets.

Keywords: Stock market dynamics, detection of speculative bubbles, present value models, state-space models with Markov-switching

JEL Classification: C22, G12

Suggested Citation

Al-Anaswah, Nael and Wilfling, Bernd, Identification of Speculative Bubbles Using State-Space Models with Markov-Switching (January 30, 2009). Available at SSRN: https://ssrn.com/abstract=1341730 or http://dx.doi.org/10.2139/ssrn.1341730

Nael Al-Anaswah

affiliation not provided to SSRN

Bernd Wilfling (Contact Author)

Westfälische Wilhelms-Universität ( email )

Professur für Empirische Wirtschaftsforschung
Am Stadtgraben 9
Münster, 48143
Germany
+49 - 251 - 83 25040 (Phone)
+49 - 251 - 83 25042 (Fax)

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