Abstract: Although we saw exuberance and crashing in the US stock market during the 2007-2009 subprime crisis, stock market bubbles could not be found before the crisis happened by existing tests for bubbles. Small sample size available and high volatility during the period possibly cause the low power of existing methods. This research proposes new tests for explosive bubbles, which use data at higher frequency and the highly precise realized volatility measure to help improving test power. With the new tests, explosive stock market bubbles are identified before the subprime crisis.
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