Detecting and analyzing explosive bubbles and their relationship with volatility: evidence from Tunisia

Sirine Ben  Yaala; Jamel Eddine   Henchiri

doi:10.1108/RAUSP-05-2024-0097

Authors

Sirine Ben Yaala University of Gabes. RED Laboratory, Higher Institute of Management https://orcid.org/0000-0002-3535-2669
Jamel Eddine Henchiri University of Gabes. RED Laboratory, Higher Institute of Management https://orcid.org/0000-0001-7675-056X

DOI:

https://doi.org/10.1108/RAUSP-05-2024-0097

Keywords:

Speculative bubbles, SADF, GSADF, Volatility regimes, MSGARCH

Abstract

Purpose

This study aims to identify and analyze speculative bubbles in the Tunisian stock market from 2004 to 2023 and examine the evolution of return volatility during these periods.

Design/methodology/approach

The research uses the Supremum Augmented Dickey-Fuller (SADF) and Generalized Supremum Augmented Dickey-Fuller (GSADF) tests, alongside Monte Carlo and bootstrap simulations (Sieve-bootstrap and Wild-bootstrap), to detect speculative bubbles. The Markov-Switching Generalized Autoregressive Conditional Heteroskedasticity model is used to analyze volatility regimes.

Findings

The study identifies multiple speculative bubbles with varying timing, duration and response to external events. The GSADF test proves more effective than the SADF test for detecting longer, more frequent bubbles. Despite methodological differences, strong correlations among bootstrap techniques improve bubble identification. Bubble periods align with a high-volatility regime (regime 2), emphasizing volatility’s role in bubble formation.

Research limitations/implications

This study enhances the understanding of speculative bubble formation in emerging markets, highlighting the importance of considering national financial market specifics in bubble analysis.

Practical implications

The findings offer valuable insights for investors, regulators and policymakers, helping inform decisions and improve financial regulation to foster market stability.

Social implications

By identifying speculative bubbles, the research helps mitigate economic uncertainty, protects savings and supports financial stability, aiding policymakers in curbing excessive speculation and promoting sustainable economic growth.

Originality/value

This research contributes to the understanding of speculative bubbles in the underexplored Tunisian stock market, using innovative methodologies for a comprehensive analysis of bubbles and volatility dynamics.

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Detecting and analyzing explosive bubbles and their relationship with volatility: evidence from Tunisia

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