HKU HKU Dept of Statistics & Actuarial Science, HKU

Seminar by Dr. Simon KWOK from School of Economics, University of Sydney

DateWednesday, 31 May 2023
Time11:00 a.m. – 12:00 n.n.
Venuein Room 301, Run Run Shaw Building
TitleA study on asset price bubble dynamics: Explosive trend or quadratic variation?

This paper posits that when an asset exhibits a bubble, the time series of its prices can explode with positive probability if a quadratic variation (QV) risk premium is large enough. This QV channel for bubble explosion is new to the literature. Based on the local martingale theory of bubbles, we provide sufficient conditions under which this QV explosion can occur. We also identify another possible explosion due to an autoregressive (AR) drift. Using the S&P 500 index and a sample of individual stocks over 1996-2021, we document the existence of price bubbles and test for the existence of price explosions. Almost all price explosion episodes discovered are associated with QV and not AR drift channel.

About the speaker

Dr. Simon Kwok is a Senior Lecturer at the School of Economics, University of Sydney. He obtained his PhD in Economics from Cornell University in August 2012. His research interests are in time series econometrics, statistics and finance. In particular, he is interested in specification tests of time series and point process models, tests of Granger causality, and their empirical applications in market microstructure, credit contagion and financial contagion.