Financialization and Speculative Bubbles – International Evidence

Abstract

This paper tests the possible presence of nonlinear speculative bubbles in 23 international markets using daily data from January 1993-March 2015, and its possible link to the financialization phenomenon. To estimate fundamental values, we estimate VAR. Residuals from these VAR are tested for significant movements away from the fundamentals using Hamilton regime switching and Hurst rescaled range tests. We also test the data for nonlinearities using BDS statistics. Our results indicate the presence of speculative bubbles in all 23 of these markets with increasing incidence over time, which suggest a linkage with the phenomenon of financialization in these economies.