Detecting Price Explosivity (Bubble) in Turkey’s Stock Prices: Evidence from an Radf Technique

Conference paper
Part of the Springer Proceedings in Business and Economics book series (SPBE)


Most of the historic economic and financial crises have resulted from the negligence of financial asset bubbles (overpricing of an asset above its fundamental value). Hence, this has drawn much attention to the need for bubble detection in these financial asset prices in order to avert a future financial crisis. This study would employ the second-generation base Right-tailed Augmented Dickey-Fuller test technique (Standard ADF, Sup ADF, Rolling ADF, and the Generalized Sup ADF) to detect the presence of price explosivity in Turkey’s stock market prices. Employing the entire RADF would help date stamp both single and multiple price bubble periods in stock prices. This study covers weekly data of Turkey’s BIST 100 from 200W1 to 2019W4 in order to capture the before and after periods of the 2008 financial crisis. A presence of multiple bubbles is expected in the series since the data covers a range of financial crisis period associated with the stock market. If the null hypothesis of no bubble is significantly rejected, expansionary monetary policies, transparency in the economic agents and prudential macro policy would be possible recommendations for policymakers to deflate the existing bubble.


RADF GSADF Sup ADF Rolling ADF Bubble Stock price Turkey 


  1. Ahuja, A., Cheung, L., Genberg, H., Porter, N., & Zhang, W. (2010). Are house prices rising too fast in China? HKMA Working Paper, 7(1), 95–102.Google Scholar
  2. Arshanapalli, B., & Nelson, W. (2008). A co-integration test to verify the housing bubble. International Journal of Business and Finance Research, 2(2), 35–43.Google Scholar
  3. Blanchard, O. J. (1979). Speculative bubbles, crashes and rational expectations. Economics Letters, 3, 387–389.CrossRefGoogle Scholar
  4. Blanchard, O. J., & Watson, M. W. (1982). Bubbles, rational expectations, and financial markets. In P. Wachtel (Ed.), Crisis in the economic and financial structure (Vol. 10, Issue No. (4), pp. 295–315).Google Scholar
  5. Bouchaud, J. P., & Challet, D. (2017). Why have asset price properties changed so little in 200 years. Econophysics and Sociophysics: Recent Progress and Future Directions, 4, 3–17.Google Scholar
  6. Campbell, J., & Shiller, R. (1987). Co-integration and tests of present value models. Journal of Political Economy, 95, 1062–1088.CrossRefGoogle Scholar
  7. Cochrane, J. (2001). Asset pricing (Vol. 54, pp. 58–75). Princeton University Press.Google Scholar
  8. Drake, L. (1993). Modelling UK house prices using co-integration: An application of the Johansen technique. Applied Economics, 25, 1225–1228.CrossRefGoogle Scholar
  9. Dolado, J. J., Gonzalo, J., & Mayoral, L. (2002). A fractional Dickey-Fuller test for unit roots. Econometrica, 70(5), 1963–2006.CrossRefGoogle Scholar
  10. Evans, G. (1991). Pitfalls in testing for explosive bubbles in asset prices. American Economic Review, 81, 922–930.Google Scholar
  11. Glindro, E. T., Subhanij, T., Szeto, J., & Zhu, H. (2008). Determinants of house prices in nine Asia-Pacific economies (pp. 340–370). BIS Paper No. 52.Google Scholar
  12. Gurkaynak, R. S. (2008). Econometric tests of asset price bubbles: Taking stock. Journal of Economic Surveys, 22(1), 166–186.CrossRefGoogle Scholar
  13. Homm, U., & Breitung, J. (2012). Testing for speculative bubbles in stock markets: A comparison of alternative methods. Journal of Financial Econometrics, 10, 198–231.CrossRefGoogle Scholar
  14. Peng, W. (2002). What drives the property price in Hong Kong. Hong Kong Monetary Authority, Quarterly Bulletin, 11(2), 37–45.Google Scholar
  15. Phillips, P. C. B., & Yu, J. (2009). Limit theory for dating the origination and collapse of mildly explosive periods in time series data (Vol. 41, pp. 21–36). Singapore Management University, Unpublished Manuscript.Google Scholar
  16. Phillips, P. C. B., Wu, Y., & Yu, J. (2011). Explosive behavior in the 1990 NASDAQ: When did exuberance escalate asset values? International Economic Review, 52, 201–226.CrossRefGoogle Scholar
  17. Phillips, P. C., Shi, S., & Yu, J. (2015). Specification sensitivity in right-tailed unit root testing for explosive behaviour. Oxford Bulletin of Economics and Statistics, 76(3), 315–333.CrossRefGoogle Scholar
  18. Shiller, R. J. (1981). Do stock prices move to much to be justified by subsequent changes in dividends? American Economic Review, 71, 421–436.Google Scholar
  19. West, K. (1987). A specification test for speculative bubbles. Quarterly Journal of Economics, 102, 553–580.CrossRefGoogle Scholar

Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.Faculty of Economic and Administrative ScienceEuropean University of LefkeLefkaTurkey
  2. 2.Department of Banking and Finance, Faculty of Economic and Administrative ScienceEuropean University of LefkeLefkaTurkey

Personalised recommendations