Monday, April 04, 2005

ACADEMIC: Econometric Tests of Asset Price Bubbles

Refet S. Gurkaynak
Division of Monetary A.airs
Board of Governors of the Federal Reserve System
Washington, DC 20551

January 2005

Can asset price bubbles be detected? This survey of econometric tests of asset price bubbles shows that, despite recent advances, econometric detection of asset price bubbles cannot be achieved with a satisfactory degree of certainty. For each paper that finds evidence of bubbles, there is another one that fits the data equally well without allowing for a bubble.

We are still unable to distinguish bubbles from time-varying or regimeswitching fundamentals, while many small sample econometrics problems of bubble tests remain unresolved.


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