Testing Explosive Bubble for Eurozone Exchange Rate in the COVID-19 Outbreak: Evidence from Recursive Right-Tailed Tests

Authors : Onur ÖZDEMİR

Pages : 32-45

View : 22 | Download : 7

Publication Date : 2020-12-31

Article Type : Research Paper

Abstract :This paper investigates the presence of explosive bubbles in financial markets using daily data insert ignore into journalissuearticles values(5-day weeks); of the closing rate of EUR/USD exchange in the COVID-19 outbreak, covering the period from December 2, 2019 to December 4, 2020. The bubble behavior in the closing rate of EUR/USD exchange is measured by two distinct right-tailed testing procedures. In this vein, the Supremum Augmented Dickey-Fuller insert ignore into journalissuearticles values(SADF); test developed by Phillips et al. insert ignore into journalissuearticles values(2011); and the Generalized Supremum Augmented Dickey-Fuller insert ignore into journalissuearticles values(GSADF); test developed by Phillips et al. insert ignore into journalissuearticles values(2015); are used to identify multiple bubble periods. The empirical findings imply that positive bubbles are a common feature of the closing rate of EUR/USD exchange in the COVID-19 outbreak. As a critical year, 2020 is identified to point out the importance of explosive bubble behavior, after which estimated statistics by two types of unit-root test procedures provide evidence of ongoing financial instability.
Keywords : Exchange Rate, Bubble Behavior, Financial Instability, COVID 19, Right Tailed Test