Abstract
Most of the historic economic and financial crises have resulted from the negligence of financial asset bubbles (overpricing of an asset above its fundamental value). Hence, this has drawn much attention to the need for bubble detection in these financial asset prices in order to avert a future financial crisis. This study would employ the second-generation base Right-tailed Augmented Dickey-Fuller test technique (Standard ADF, Sup ADF , Rolling ADF , and the Generalized Sup ADF ) to detect the presence of price explosivity in Turkey ’s stock market prices. Employing the entire RADF would help date stamp both single and multiple price bubble periods in stock prices. This study covers weekly data of Turkey ’s BIST 100 from 200W1 to 2019W4 in order to capture the before and after periods of the 2008 financial crisis. A presence of multiple bubbles is expected in the series since the data covers a range of financial crisis period associated with the stock market. If the null hypothesis of no bubble is significantly rejected, expansionary monetary policies, transparency in the economic agents and prudential macro policy would be possible recommendations for policymakers to deflate the existing bubble .
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Notes
- 1.
Classical ADF unit root test is based on the null hypothesis \( (\delta = 1) \) against its alternative hypothesis \( (\delta < 1) \). The right-tailed ADF statistic is calculated using the recursive regressions.
- 2.
It should be noted that in the standard ADF, the widow size is usually fixed. i.e., rw = r0. Window size (rw) can be simply be denoted as rw = r2 − r1.
- 3.
In the RADF. procedure, the windows are always overlapping.
- 4.
The user sets the initial window size.
- 5.
- 6.
In deriving the initial sample size, we use this formula r0 = 0.01 + 1.8/ √T (Phillips et al. 2015).
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Onyibor, K., Şafakli, O. (2019). Detecting Price Explosivity (Bubble) in Turkey’s Stock Prices: Evidence from an Radf Technique. In: Ozatac, N., Gokmenoglu, K. (eds) Global Issues in Banking and Finance. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-30387-7_9
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