Title: Bubble detection in error correction models
Authors: Leopold Soegner - Institute for Advanced Studies (Austria) [presenting]
Martin Wagner - University of Klagenfurt (Austria)
Abstract: Consistent monitoring procedures are developed with the goal of detecting bubbles in a Johansen-type error correction model. In particular, we consider breaks where the cointegration rank remains constant as well as breaks changing the cointegration rank. We develop Lagrange multiplier tests allowing to monitor these kinds of breaks. The monitoring procedure is used to detect possible bubbles in the triangular arbitrage parity.