Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Dallas
Globalization Institute Working Papers
Detecting Periods of Exuberance: A Look at the Role of Aggregation with an Application to House Prices
Efthymios Pavlidis
Enrique Martinez-Garcia
Valerie Grossman
Abstract

The recently developed SADF and GSADF unit root tests of Phillips et al. (2011) and Phillips et al. (2015) have become popular in the literature for detecting exuberance in asset prices. In this paper, we examine through simulation experiments the effect of cross-sectional aggregation on the power properties of these tests. The simulation design considered is based on actual housing data for both U.S. metropolitan and international housing markets and thus allows us to draw conclusions for different levels of aggregation. Our findings suggest that aggregation lowers the power of both the SADF and GSADF tests. The effect, however, is much larger for the SADF test. We also provide evidence that tests based on panel data techniques, namely the panel GSADF test recently proposed by Pavlidis et al. (2015), can perform substantially better than univariate tests applied to aggregated series.


Download Original version
Download Revised version
Cite this item
Efthymios Pavlidis & Enrique Martinez-Garcia & Valerie Grossman, Detecting Periods of Exuberance: A Look at the Role of Aggregation with an Application to House Prices, Federal Reserve Bank of Dallas, Globalization Institute Working Papers 325, 01 Aug 2017, revised 01 Jul 2018.
More from this series
JEL Classification:
Subject headings:
DOI: 10.24149/gwp325r1
For corrections, contact Amy Chapman ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal