Testing Explosive Bubble for Eurozone Exchange Rate in the COVID-19 Outbreak: Evidence from Recursive Right-Tailed Tests


  • Onur ÖZDEMİR Istanbul Gelisim University, Faculty of Economics, Administrative and Social Sciences, Department of International Trade and Finance (English)


Exchange Rate, Bubble Behavior, Financial Instability, COVID-19, Right-Tailed Test


This paper investigates the presence of explosive bubbles in financial markets using daily data (5-day weeks) of the closing rate of EUR/USD exchange in the COVID-19 outbreak, covering the period from December 2, 2019 to December 4, 2020. The bubble behavior in the closing rate of EUR/USD exchange is measured by two distinct right-tailed testing procedures. In this vein, the Supremum Augmented Dickey-Fuller (SADF) test developed by Phillips et al. (2011) and the Generalized Supremum Augmented Dickey-Fuller (GSADF) test developed by Phillips et al. (2015) are used to identify multiple bubble periods. The empirical findings imply that positive bubbles are a common feature of the closing rate of EUR/USD exchange in the COVID-19 outbreak. As a critical year, 2020 is identified to point out the importance of explosive bubble behavior, after which estimated statistics by two types of unit-root test procedures provide evidence of ongoing financial instability.


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How to Cite

ÖZDEMİR, O. (2021). Testing Explosive Bubble for Eurozone Exchange Rate in the COVID-19 Outbreak: Evidence from Recursive Right-Tailed Tests. Journal of Sustainable Economics and Management Studies, 1(1), 32–45. Retrieved from https://dergiler.gelisim.edu.tr/index.php/ecoman/article/view/1