Periodically collapsing Evans bubbles and stock-price volatility
Rotermann Benedikt; Wilfling Bernd
Abstract
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 link between the bubble component and stock-price volatility. Using a Bayesian Monte-Carlo estimation technique (the particle filter), we demonstrate how to fit the parametric volatility equation to stock-market data.
Keywords
Present-value model; Evans bubbles; conditional volatility; particle-filter estimation
Publication type
Working paper
Peer reviewed
No
Publication status
Published
Year
2013
Volume
28/2013
Title of series
CQE Working Paper
Publisher
Center for Quantitative Economics (CQE), University of Muenster
Place
University of Muenster
Language
English