This paper challenges the existing literature examining the impact of the introduction of index futures trading on the volatility of its underlying. To overcome econometric shortcomings of previously published work using the dummy variable approach, we employ a Markov-switching-GARCH technique....

In the context of the present-value stock-price model, we propose a new rational parametric bubble specification that is able to generate periodically recurring and stochastically deflating trajectories. Our bubble model is empirically more plausible than its predecessor variants and has neatly...

Motivated by repeated spikes and crashes during previous decades we investigate whether the heavily financialized market for crude oil has been driven by speculative bubbles. In our theoretical modeling we draw on the convenience yield approach in order to approximate the fundamental value of...

In this paper we analyze the dynamics of zero-coupon bond options in a situation in which two open economies plan to enter a currency union in the future. More precisely, we make use of recent theoretical work on the continuous-time dynamics of interest-rate differentials between the economies...

This paper investigates the impact of introducing index futures trading on the volatility of the underlying stock market. We exploit a unique institutional setting in which presumably uninformed individuals are the dominant trader type in the futures markets. This enables us to investigate the...

In this paper we use a state-space model with Markov-switching to detect speculative bubbles in stock-price data. Our two innovations are (1) to adapt this technology to the state-space representation of a well-known present-value stock-price model, and (2) to estimate the model via...

This paper analyzes conditional stock-price volatility within in present-value framework including (rational) periodically collapsing bubbles as introduced by Evans (1991). To this end, we derive an analytically closed-form volatility formula of the stock price. The formula establishes a direct...

In this paper we develop a unifying Markov-switching GARCH model which enables us (1) to specify complex GARCH equations in two distinct Markov-regimes, and (2) to model GARCH equations of different functional forms across the two Markov-regimes. To give a simple example, our flexible...

Using a Markov-switching GARCH model this paper analyzes the volatility evolution of the greenback's price in gold from after the Civil War until the return to gold convertibility in 1879. The econometric inference associated with our methodology indicates a switch to a regime of low volatility...