Testing for Bubbles and Change–Points

Abstract

A model for a financial asset is constructed with two types of agents, who differ in terms of their beliefs. The proportion of the two types changes over time according to stochastic processes which model the interaction between the agents. Agents do not persist in holding “wrong” beliefs and bubble–like phenomena in the asset price occur. We consider tests for detecting bubbles in the conditional mean and multiple changes in the conditional variance of the process. A wavelet analysis of the series generated by our models shows that the strong persistence in the volatility is likely to be the outcome of a mix of changes in regimes and a moderate level of long–range dependence. These results are consistent with what has been observed by Kokoszka and Teyssière (2002) and Teyssière (2003).

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Cite this paper

@inproceedings{Kirman2002TestingFB, title={Testing for Bubbles and Change–Points}, author={Alan Kirman and Gilles Teyssi{\`e}re and Davar Khoshnevisan and Danny Quah and T. Sargent and Isaac Newton}, year={2002} }