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Statistical Interpretation of Economic Bubbles

Yeo, In-Kwon

  • Received : 2012.08.27
  • Accepted : 2012.11.06
  • Published : 2012.12.31

Abstract

In this paper, we propose a statistic to measure investor sentiment. It is a usual phenomenon that an asymmetric volatility (referred to as the leverage effect) is observed in financial time series and is more sensitive to bad news rather than good news. In a bubble state, investors tend to continuously speculate on financial instruments because of optimism about the future; subsequently, prices tend to abnormally increase for a long time. Estimators of the transformation parameter and the skewness based on Yeo-Johnson transformed GARCH models are employed to check whether a bubble or abnormality exist. We verify the appropriacy of the proposed interpretation through analyses of KOSPI and NIKKEI.

Keywords

GARCH model;leverage effect;skewness;Yeo-Johnson transformation

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Acknowledgement

Supported by : Sookmyung Women's University