CEBA talks 2020-2021
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Time-Transformed Test for the Explosive Bubbles under Non-stationary Volatility

Authors: Eiji Kurozumi, Anton Skrobotov and Alexey Tsarev


Abstract: This paper is devoted to testing for the explosive bubble under time-varying non-stationary volatility. Because the limiting distribution of the seminal Phillips, Wu and Yu (2011) test depends on the variance function and usually requires a bootstrap implementation under heteroskedasticity, we construct the test based on a deformation of the time domain. The proposed test is asymptotically pivotal under the null hypothesis and its limiting distribution coincides with that of the standard test under homoskedasticity, so that the test does not require computationally extensive methods for inference. Appealing finite sample properties are demonstrated through Monte-Carlo simulations.


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