Testing the Price Bubbles in Cryptocurrencies using Sequential Augmented Dickey-Fuller (SADF) Test Procedures: A Comparison for Before and After COVID-19
DOI:
https://doi.org/10.47743/saeb-2023-0005Keywords:
price bubbles, COVID-19, SADF, Asymmetric Causality.Abstract
Bubbles in asset prices have attracted the attention of economists for centuries. Extreme increases in asset prices, followed by their sudden decline, create a turbulent effect on the economy and even invite crises in time. For this reason, some measurement techniques have been employed to investigate the price bubbles that may occur. This study explores the possible speculative price bubbles of Bitcoin, Ethereum, and Binance Coin cryptocurrencies, compares them with the pre-and post-COVID-19 period, and examines asymmetric causality relationships between variables. Therefore, we analyzed the price bubbles of these cryptocurrencies using the closing price for daily data between 16.01.2018 and 31.12.2021 by the Supremum Augmented Dickey-Fuller (SADF) and the Hatemi-J (2012) asymmetric causality test. In this context, 1446 observations, 723 of which were before COVID-19 and 723 after COVID-19, were employed in the study. Looking at the SADF analysis results, we detected 103 price bubbles before COVID-19 for the three cryptocurrencies, while we determined 599 price bubbles after COVID-19. The common finding in the asymmetric causality test results is that there is a causality relationship between the negative shocks faced by one cryptocurrency and the positive shocks faced by the other cryptocurrencies.
References
Aliu, F., Nuhiu, A., Knapkova, A., Lubishtani, E., & Tran, H. K. (2021). Do cryptocurrencies offer diversification benefits for equity portfolios? Studies in Business and Economics, 16(2), 5-18. http://dx.doi.org/10.2478/sbe-2021-0021
Aliu, F., Nuhiu, A., Krasniqi, B. A., & Jusufi, G. (2020). Modeling the optimal diversification opportunities: The case of crypto portfolios and equity portfolios. Studies in Economics and Finance, 38(1), 50-66. http://dx.doi.org/10.1108/SEF-07-2020-0282
Anbugeetha, D., & Nandhini, B. (2021). Evolution of money: From barter system to digital money. In A. S. Selvan (Ed.), The new era of digital payments (3rd ed. ed., Vol. 1, pp. 55-65). New Chennai Publications.: New Chennai Publications.
Arshanapalli, B., & Nelson, W. (2016). Testing for stock price bubbles: A Review of econometric tools. SSRN, 1(10), 29-42. http://dx.doi.org/10.2139/ssrn.2910048
Bouri, E., Shahzad, S. J. H., & Roubaud, D. (2019). Co-explosivity in the cryptocurrency market. Finance Research Letters, 29(C), 178-183. http://dx.doi.org/10.1016/j.frl.2018.07.005
Brunnermeier, M. K., & Oehmke, M. (2013). Bubbles, Financial Crises, and Systemic Risk (Vol. 2): 2013. http://dx.doi.org/10.1016/B978-0-44-459406-8.00018-4
Çağlı, E. C., & E., M. P. (2018). Uluslararası hisse senedi piyasalarında özyinelemeli esnek tahminleme ile çoklu balonların belirlenmesi. İşletme Fakültesi Dergisi, 19(2), 193-200. http://dx.doi.org/10.24889/ifede.452513
Chang, T., Gil-Alana, L., Aye, G. C., Gupta, R., & Ranjbar, O. (2016). Testing for bubbles in the BRICS stock markets. Journal of Economic Studies. Journal of Economic Studies (Glasgow, Scotland), 43(4), 646-660. http://dx.doi.org/10.1108/JES-07-2014-0128
Corbet, S., Lucey, B., & Yarovaya, L. (2018). Datestamping the bitcoin and ethereum bubbles. Finance Research Letters, 26(C), 81-88. http://dx.doi.org/10.1016/j.frl.2017.12.006
El Montasser, G., Naoui, K., & Fry, J. (2018). Speculative bubbles or explosive fundamentals in stock prices? new evidence from SADF and GSADF tests. Journal of Statistics & Management Systems, 21(1), 93-106. http://dx.doi.org/10.1080/09720510.2017.1401799
Enoksen, F. A., Landsnes, C. J., Lucivjanská, K., & Molnár, P. (2020). Understanding risk of bubbles in cryptocurrencies. Journal of Economic Behavior & Organization, 176, 129-144. http://dx.doi.org/10.1016/j.jebo.2020.05.005
Erdaş, M. L., & Çağlar, A. E. (2018). Analysis of the relationships between bitcoin and exchange rate, commodities and global ındexes by asymmetric causality test. Eastern Journal of European Studies, 9(2), 27-45. http://dx.doi.org/10.30798/makuiibf.1097491
Ethereum. (2022). Retrieved from: https://ethereum.org/en/what-is-ethereum/
Etienne, X. L., Irwin, S. H., & Garcia, P. (2014). Bubbles in food commodity markets: Four decades of evidence. Journal of International Money and Finance, 42, 129-155. http://dx.doi.org/10.1016/j.jimonfin.2013.08.008
Frehen, R. G. P., Goetzmann, W. N., & Rouwenhorst, K. (2013). New evidence on the first financial bubble. Journal of Financial Economics, 108(3), 585-607. http://dx.doi.org/10.1016/j.jfineco.2012.12.008
Galbraith, J. K. (2009). The great crash 1929: Penguin Books.
Geuder, J., Kinateder, H., & Wagner, N. F. (2019). Cryptocurrencies as financial bubbles: The case of bitcoin. Finance Research Letters, 31(C), 179-184. http://dx.doi.org/10.1016/j.frl.2018.11.011
Goldgar, A. (2007). Tulipmania: Money, honour, and knowledge in the Dutch golden age: Chicago University Press. http://dx.doi.org/10.7208/chicago/9780226301303.001.0001
Güleç, T. C., & Aktaş, H. (2019). Kripto para piyasasında spekülatif fiyat balonlarının analizi. Muhasebe ve Finansman Dergisi(84), 149-164. http://dx.doi.org/10.25095/mufad.625790
Güler, İ., & Gökçe, A. (2020). Yabancılara Konut Satışı ile Konut Balonu İlişkisinin GSADF Sınamaları ile Araştırılması: Türkiye Geneli ve İstanbul, Antalya İlleri Örneği. Üçüncü Sektör Sosyal Ekonomi Dergisi, 55(2), 989-1007. http://dx.doi.org/10.15659/3.sektor-sosyal-ekonomi.20.05.1353
Gürkaynak, R. S. (2008). Econometric tests of asset price bubbles: taking stock. Journal of Economic Surveys, 22(1), 166-186. http://dx.doi.org/10.1111/j.1467-6419.2007.00530.x
Hatemi-J, A. (2012). Asymmetric causality tests with an application. Empirical Economics, 43(1), 447-456.
Herrera, C. J. J., & Tourinho, O. A. (2019). Multiple bubbles in crude oil prices 1990-2019: SADF and GSADF tests. Retrieved from https://sistemas.colmex.mx/Reportes/LACEALAMES/LACEA-LAMES2019_paper_676.pdf
Investopedia. (2022). Retrieved from: https://www.investopedia.com/terms/b/binance-coin-bnb.asp#:~:text=Binance%20Coin%20is%20the%20cryptocurrency%20issued%20by%20the%20Binance%20exchange,own%20blockchain%2C%20the%20Binance%20chain
Jarrow, R. A., Protter, P., & Shimbo, K. (2010). Asset price bubbles in incomplete markets. Mathematical Finance: An International Journal of Mathematics. Mathematical Finance, 20(2), 145-185. http://dx.doi.org/10.1111/j.1467-9965.2010.00394.x
Kayral, İ. E. (2021). Kripto paralarda fiyat balonlarının incelenmesi: Pandemi öncesi ve COVID-19 dönemi için bir uygulama. İnsan ve Toplum Bilimleri Araştırmaları Dergisi, 10(3), 2310-2327. http://dx.doi.org/10.15869/itobiad.931552
Kindleberger, C. P. (1996). Manias, panics and crashes: A history of financial crises. (3rd ed. ed.): Macmillan.
König, S. (2021). The Evolution of Money From Commodity Money to E-Money: UNICERT IV Program.
Kyriazis, N., Papadomou, S., & Corbet, S. (2020). A systematic review of the bubble dynamics of cryptocurrency prices. Research in International Business and Finance, 54(C), 101254. http://dx.doi.org/10.1016/j.ribaf.2020.101254
Li, Y., Wang, Z., & Wang, H. (2021). Identifying price bubble periods in the Bitcoin market-based on GSADF model. Quality & Quantity, 55(1), 1-16, 1829–1844. http://dx.doi.org/10.1007/s11135-020-01077-4
Liu, Y., Tsyvinski, A., & Wu, X. (2022). Common risk factors in cryptocurrency. The Journal of Finance, 77(2), 1133-1177. http://dx.doi.org/10.1111/jofi.13119
Liu, Z., Han, D., & Wang, S. (2016). Testing Bubbles: Exuberance and collapse in the Shanghai A-share stock market (L. Song, R. Garnaut, C. Fang, L. Johnston, & (Eds.) Eds. Vol. 1): Australian National University PRESS.
Ljungquist, A., & Wilhelm, W. J. (2003). IPO pricing in the dot-com bubble. The Journal of Finance, 58(2), 723-752. http://dx.doi.org/10.1111/1540-6261.00543
Lucey, B. M., Vigne, S. A., Yarovaya, L., & Wang, Y. (2022). The cryptocurrency uncertainty index. Finance Research Letters, 45, 102-147. http://dx.doi.org/10.1016/j.frl.2021.102147
Mayer, C. (2011). Housing bubbles: A survey. Annual Review of Economics, 3(1), 559-577. http://dx.doi.org/10.1146/annurev.economics.012809.103822
McCarthy, N., Poole, K. T., & Rosenthal, H. (2013). Political bubbles: Financial crises and the failure of American democracy: Princeton University Press.
Mensi, W., Sensoy, A., Aslan, A., & Kang, S. H. (2019). High-Frequency asymmetric volatility connectedness between bitcoin and major precious metals markets. The North American Journal of Economics and Finance, 50(C). http://dx.doi.org/10.1016/j.najef.2019.101031
Mete, S., Koy, A., & Ersoy, H. (2019). Kriptoparalarda fiyat balonu incelemesi. BDDK Bankacılık ve Finansal Piyasalar Dergisi, 13(1), 105-120.
Mokni, K., & Ajmi, A. N. (2021). Cryptocurrencies vs. US Dollar: Evidence from Causality in Quantiles Analysis. Economic Analysis and Policy, 69, 238-252. http://dx.doi.org/10.1016/j.eap.2020.12.011
Monschang, V., & Wilfling, B. (2021). Sup-ADF-style Bubble-detection Methods Under Test. Empirical Economics, 61, 145-172. http://dx.doi.org/10.1007/s00181-020-01859-7
Nakamoto, S. (2009). Bitcoin: A Peer-to-Peer Electronic Cash System. Org.
Ofek, E., & Richardson, M. (2003). DotCom mania: The rise and fall of internet stock prices. The Journal of Finance, 58(3), 1113-1137. http://dx.doi.org/10.1111/1540-6261.00560
Ogachi, D., Mugambi, P., Bares, L., & Zeman, Z. (2021). Idiosyncrasies of money: 21st century evolution of money. Economies, MDPI, 9 (1)(40), 1-19. http://dx.doi.org/10.3390/economies9010040
Özdemir, O. (2021). Cryptocurrencies, COVID-19 pandemic and the financial bubbles: The case of top five digital assets. Hitit Journal of Social Sciences, 14(1), 110-123. http://dx.doi.org/10.17218/hititsbd.881250
Pan, W. F. (2019). Detecting bubbles in China’s regional housing markets. Empirical Economics, 56(4), 1413-1432. http://dx.doi.org/10.1007/s00181-017-1394-3
Paul, H. (2011). The South Sea Bubble: An economic history of its origins and consequences: Routledge.
Pavlidis, E. G., Garcia, E. M., & Grossman, V. (2017). Detecting periods of exuberance: A Look at the role of aggregation with an application to house prices. SSRN Electronic Journal, Working Paper, 325. http://dx.doi.org/10.24149/gwp325r1
Phillips, P. C. B., Shi, S., & Yu, J. (2015). Testing for multiple bubbles: Historical episodes of exuberance and collapse in the S&P 500. International Economic Review, 56(4), 1043-1078. http://dx.doi.org/10.1111/iere.12132
Phillips, P. C. B., Wu, Y., & Yu, J. (2011). Explosive behavior in the 1990s Nasdaq: When did exuberance escalate asset values? International Economic Review, 52, 201-226. http://dx.doi.org/10.1111/j.1468-2354.2010.00625.x
Phillips, P. C. B., & Yu, J. (2011). Dating the timeline of financial bubbles during the subprime crisis. Quantitative Economics, 2(3), 455-491. http://dx.doi.org/10.3982/QE82
Quinn, W., & Turner, J. D. (2020). Boom and bust: A global history of financial bubbles: Cambridge University Press. http://dx.doi.org/10.1017/9781108367677
Sharma, S., & Escobari, D. (2018). Identifying price bubble periods in the energy sector. Energy Economics, 69, 418-429. http://dx.doi.org/10.1016/j.eneco.2017.12.007
Şak, N. (2021). Kripto paralar arasındaki ilişkinin incelenmesi: Hatemi-J Asimetrik nedensellik analizi. Vizyoner Dergisi, 12(29), 149-175. http://dx.doi.org/10.21076/vizyoner.753201
Thompson, E. A. (2007). The tulipmania: Fact or artifact? Public Choice, 130(1–2), 99-114. http://dx.doi.org/10.1007/s11127-006-9074-4
Wang, Y., Horky, F., Baals, L. J., Lucey, B. M., & Vigne, S. A. (2022). Bubbles all the way down? Detecting and date-stamping bubble behaviours in NFT and DeFi markets. Journal of Chinese Economic and Business Studies, 20(4), 415-436. http://dx.doi.org/10.1080/14765284.2022.2138161
Yildirim, H. (2021). Testing bubbles formation at real-time commodity prices. Journal of Public Affairs, 21(3). http://dx.doi.org/10.1002/pa.2243
Yildirim, H., Akdag, S., & Alola, A. A. (2022). Is there a price bubble in the exchange rates of the developing countries? The case of BRICS and Turkey. Journal of Economics, Finance and Administrative Science, 27(54), 247-261. http://dx.doi.org/10.1108/JEFAS-04-2021-0025
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Ali Çelik, Çağrı Ulu
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
All accepted papers are published on an Open Access basis.
The Open Access License is based on the Creative Commons license.
The non-commercial use of the article will be governed by the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License as currently displayed on https://creativecommons.org/licenses/by-nc-nd/4.0
Under the Creative Commons Attribution-NonCommercial-NoDerivatives license, the author(s) and users are free to share (copy, distribute and transmit the contribution) under the following conditions:
1. they must attribute the contribution in the manner specified by the author or licensor,
2. they may not use this contribution for commercial purposes,
3. they may not alter, transform, or build upon this work.
This work is licenced under a 
