Statistics Seminar (2019-23)

Title: Common Bubble Detection in Large-Dimensional Financial Systems

Speaker: Ye Chen, Capital University of Economics and Business

Time: Thursday, November 7, 14:00-15:00

Place: Room 217, Guanghua Building 2

Abstract:

Price bubbles in multiple assets are sometimes nearly coincident in occurrence. Such near-coincidence is strongly suggestive of co-movement in the associated asset prices and likely driven by certain factors that are latent in the financial or economic system with common effects across several markets. Can we detect the presence of such common factors at the early stages of their emergence? To answer this question, we build a factor model that includes both I(1) and mildly explosive factors to capture normal and exuberant phases in such phenomena. The I(1) factor models the primary driving force of market fundamentals. The explosive factor models latent forces that underlie the formation of asset price bubbles, which typically exist only for subperiods of the sample. The paper provides an algorithm for testing the presence of and date-stamping the origination of price bubbles determined by latent factors in a large-dimensional system embodying many markets. Asymptotics of the bubble test statistic are given under the null of no common bubbles and the alternative of a common bubble across these markets. We prove consistency of a factor bubble detection process for the origination date of the commmon bubble. Simulations show good finite sample performance of the testing algorithm in terms of its successful detection rates. Our methods are applied to real estate markets covering 89 major cities in China over the period January 2003 to March 2013. Results suggest the presence of three common bubble episodes in what are known as China's Tier 1 and Tier 2 cities over the sample period. There appears to be little evidence of a common bubble in Tier 3 cities.

Introduction:

Ye Chen is currently an associate Professor of International School of Economics and Management Capital University of Economics and Business. She received her Ph.D. Economics from the Singapore Management University and her B.A. Finance from the Shandong University. Before joining CUEB, she worked as a Postdoctoral Research Fellow at Sim Kee Boon Institute for Financial Economics Singapore Management University. Her research activities span topics in Econometric Theory, Econometric Reviews, Journal of Applied Econometrics, Journal of Banking and Finance, Journal of Econometrics, Economic Modelling, Empirial Economics, Social Sciences in China.

//isem.cueb.edu.cn/xyry/jxyj/amc/c/71190.htm

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