Is there a price bubble in the exchange rates of the developing countries? The case of BRICS and Turkey
Keywords:
Price bubble, Currency conversion rates, SADF, GSADF, BRICS, TurkeyAbstract
Purpose
The last decades have experienced increasingly integrated global political and economic dynamics ranging especially from the influence of exchange rates and trade amid other sources of uncertainties. The purpose of this study is to examine the exchange rate dynamics of Brazil, Russia, India, China, and South Africa (BRICS) and the Republic of Turkey.
Design/methodology/approach
Given this perceived global dynamics, the current study examined the BRICS countries and the Republic of Turkey's exchange rate dynamics by using the United States (US) monthly dollar exchange rate data between January 2002 and August 2019. The price bubble which is expressed as exceeding the real value of assets' prices which is observably caused by speculative movements is investigated by using the Supremum Augmented Dickey-Fuller (SADF) and the Generalized Supremum Augmented Dickey-Fuller (GSADF) approaches.
Findings
Accordingly, the GSADF test results opined that there are price bubbles in the dollar exchange rate of other countries except for the United States Dollar (USD)/Indian Rupee (INR) exchange rate. As the related countries are classified as developing countries in terms of their structure, they are also expectedly the subject of speculative exchange rate movements. Speculative movements in exchange rates may cause serious problems in national economies.
Originality/value
Thus, the current study provides a policy framework to the BRICS countries and the Republic of Turkey.
Downloads
References
Afsar, A. and Dogan, E. (2018), “Analyzing asset of bubbles in the housing market with right-tailed unit root tests: the case of Turkey”, Journal of Business Economics and Finance, Vol. 7 No. 2, pp. 139-147, doi: 10.17261/Pressacademia.2018.836.
Akadiri, S.S., Alola, A.A. and Uzuner, G. (2020), “Economic policy uncertainty and tourism: evidence from the heterogeneous panel”, Current Issues in Tourism, Vol. 23 No. 20, pp. 2507-2514, doi: 10.1080/13683500.2019.1687662.
Akdag, S., Yildirim, H. and Alola, A.A. (2021), “The USA–China trade policy uncertainty and inference for the major global south indexes”, Journal of Economic and Administrative Sciences, doi: 10.1108/JEAS-05-2020-0077.
Alola, A.A. (2020), “Evidence of speculative bubbles and regime switch in real estate market and crude oil price: insight from Saudi Arabia”, International Journal of Finance and Economics, doi: 10.1002/ijfe.1971.
Alola, A.A. (2021), “The dynamics of crude oil price and the real estate market in Saudi Arabia: a Markov‐switching approach”, Journal of Public Affairs, Vol. 21 No. 2, e2178, doi: 10.1002/pa.2178.
Alola, A.A. and Uzuner, G. (2020), “The housing market and agricultural land dynamics: appraising with Economic Policy Uncertainty Index”, International Journal of Finance and Economics, Vol. 25 No. 2, pp. 274-285, doi: 10.1002/ijfe.1751.
Alola, U.V., Cop, S. and Adewale Alola, A. (2019), “The spillover effects of tourism receipts, political risk, real exchange rate, and trade indicators in Turkey”, International Journal of Tourism Research, Vol. 21 No. 6, pp. 813-823, doi: 10.1002/jtr.2307.
Altay, E. (2008), “Rational bubbles in Istanbul stock exchange: linear and nonlinear unit root tests”, Economics in Emerging Markets, Edt, Lado Beridze, Nova Science Publishers, New York, pp. 169-202.
Balcilar, M., Gupta, R. and Pierdzioch, C. (2016), “Does uncertainty move the gold price? New evidence from a nonparametric causality-in-quantiles test”, Resources Policy, Vol. 49, pp. 74-80, doi: 10.1016/j.resourpol.2016.04.004.
Balcilar, M., Ozdemir, Z.A., Ozdemir, H. and Wohar, M.E. (2020), “Spillover effects in oil-related CDS markets during and after the sub-prime crisis”, The North American Journal of Economics and Finance, Vol. 54, 101249, doi: 10.1016/j.najef.2020.101249.
Bettendorf, T. and Chen, W. (2013), “Are there bubbles in the Sterling-dollar exchange rate? New evidence from sequential ADF tests”, Economics Letters, Vol. 120 No. 2, pp. 350-353, doi: 10.1016/j.econlet.2013.04.039.
Blanchard, O.J. and Watson, M.W. (1982), “Bubbles, rational expectations and financial markets”, NBER working paper, (w0945).
Bozoklu, Ş. and Zeren, F. (2013), “Türkiye hisse senedi piyasasinda rasyonel köpükler: sakli eş bütünleşme yaklaşimi”, Finansal Araştırmalar ve Çalışmalar Dergisi, Vol. 5 No. 9, pp. 17-31.
Case, K.E. and Shiller, R.J. (2003), “Is there a bubble in the housing market?”, Brookings Papers on Economic Activity, Vol. 2003 No. 2, pp. 299-362, doi: 10.1353/eca.2004.0004.
Caspi, I. (2016), “Testing for a housing bubble at the national and regional level: the case of Israel”, Empirical Economics, Vol. 51 No. 2, pp. 483-516, doi: 10.1007/s00181-015-1007-y.
Ceylan, F., Ekinci, R., Tüzün, O. and Kahyaoğlu, H. (2018), “Kripto para piyasasinda balonlarin tespiti: bitcoin ve ethereum örneği”, Business and Management Studies: An International Journal, Vol. 6 No. 3, pp. 263-274.
Cheah, E.T. and Fry, J. (2015), “Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin”, Economics Letters, Vol. 130, pp. 32-36, doi: 10.1016/j.econlet.2015.02.029.
Cheung, A., Roca, E. and Su, J.J. (2015), “Crypto-currency bubbles: an application of the Phillips–Shi–Yu (2013) methodology on Mt. Gox bitcoin prices”, Applied Economics, Vol. 47 No. 23, pp. 2348-2358, doi: 10.1080/00036846.2015.1005827.
Clarke, J., Jandik, T. and Mandelker, G. (2001), “The efficient markets hypothesis”, Expert Financial Planning: Advice from Industry Leaders, Vol. 7 Nos 3/4, pp. 126-141.
Deviren, B., Kocakaplan, Y., Keskin, M., Balcılar, M., Özdemir, Z.A. and Ersoy, E. (2014), “Analysis of bubbles and crashes in the TRY/USD, TRY/EUR, TRY/JPY and TRY/CHF exchange rate within the scope of econophysics”, Physica A: Statistical Mechanics and Its Applications, Vol. 410, pp. 414-420, doi: 10.1016/j.physa.2014.05.029.
Diba, B.T. and Grossman, H.I. (1988), “Explosive rational bubbles in stock prices?”, The American Economic Review, Vol. 8 No. 3, pp. 520-530, available at: https://www.jstor.org/stable/1809149.
Dowd, K. (2014), “New private monies: a bit-part player?”, Institute of Economic Affairs Monographs, Hobart Paper, 174, available at: https://ssrn.com/abstract=2535299.
El Montasser, G., Fry, J. and Apergis, N. (2016), “Explosive bubbles in the US–China exchange rate? Evidence from right-tailed unit root tests”, China Economic Journal, Vol. 9 No. 1, pp. 34-46, doi: 10.1080/17538963.2015.1125591.
Evans, G.W. (1986), “A test for speculative bubbles in the sterling-dollar exchange rate: 1981-84”, The American Economic Review, pp. 621-636, available at: https://www.jstor.org/stable/1806063.
Fabozzi, F.J. and Xiao, K (2019), “The timeline estimation of bubbles: the case of real estate”, Real Estate Economics, Vol. 47 No. 2, pp. 564-594, doi: 10.1111/1540-6229.12246.
Fama, E.F. (1970), “Efficient capital markets a review of theory and empirical work”, The Journal of Finance, Vol. 25, pp. 383-417.
Fernández-Kranz, D. and Hon, M.T. (2006), “A cross-section analysis of the income elasticity of housing demand in Spain: is there a real estate bubble?”, The Journal of Real Estate Finance and Economics, Vol. 32 No. 4, pp. 449-470, doi: 10.1007/s11146-006-6962-9.
Gürkaynak, R.S. (2008), “Econometric tests of asset price bubbles: taking stock”, Journal of Economic Surveys, Vol. 22 No. 1, pp. 166-186.
Guru, B.K. and Yadav, I.S. (2019), “Financial development and economic growth: panel evidence from BRICS”, Journal of Economics, Finance and Administrative Science, doi: 10.1108/JEFAS-12-2017-0125.
Hamilton, J.D. and Whiteman, C.H. (1985), “The observable implications of self-fulfilling expectations”, Journal of Monetary Economics, Vol. 16 No. 3, pp. 353-373.
Homm, U. and Breitung, J. (2012), “Testing for speculative bubbles in stock markets: a comparison of alternative methods”, Journal of Financial Econometrics, Vol. 10 No. 1, pp.198-231, doi: 10.1093/jjfinec/nbr009.
Hu, Y. and Oxley, L. (2017), “Are there bubbles in exchange rates? Some new evidence from G10 and emerging market economies”, Economic Modelling, Vol. 64, pp. 419-442, doi: 10.1016/j.econmod.2017.02.022.
Hung, N.T. (2019), “Return and volatility spillover across equity markets between China and Southeast Asian countries”, Journal of Economics, Finance and Administrative Science, doi: 10.1108/JEFAS-10-2018-0106.
Huy, D.T.N., Dat, P.M. and Anh, P.T. (2020a), “Building an econometric model of selected factors' impact on stock price: a case study”, Journal of Security and Sustainability Issues, Vol. 9 No. 3, pp. 1-16.
Huy, D.T.N., Loan, B.T.T. and Pham, T.A. (2020b), “Impact of selected factors on stock price: a case study of Vietcombank in Vietnam”, Entrepreneurship and Sustainability Issues, Vol. 7 No. 4, p. 2715.
Huy, D.T.N., Nhan, V.K., Bich, N.T.N., Hong, N.T.P., Chung, N.T. and Huy, P.Q. (2021), “Impacts of internal and external macroeconomic factors on firm stock price in an expansion econometric model—a case in Vietnam real estate industry”, in Data Science for Financial Econometrics, Springer, Cham, pp. 189-205.
Jirasakuldech, B., Emekter, R. and Went, P. (2006), “Rational speculative bubbles and duration dependence in exchange rates: an analysis of five currencies”, Applied Financial Economics, Vol. 16 No. 3, pp. 233-243, doi: 10.1080/09603100500378997.
Kindleberger, C.P. and Aliber, R.Z. (2005), Manias, Panics and Crashes: A History of Financial Crises, John Wiley & Sons, New Jersey.
Kotil, E. (2019), “Exports, imports, and the exchange rate: a causality analysis for Turkey (2004-2017)”, in Contemporary Issues in Behavioral Finance, Emerald Publishing Limited, Bingley, Vol. 101, pp. 163-170.
Kristoufek, L. (2015), “What are the main drivers of the Bitcoin price? Evidence from wavelet coherence analysis.”, PLoS One, Vol. 10 No. 4, p. e0123923, doi: 10.1371/journal.pone.0123923.
Landgraf, N. (2016), “Testing for multiple bubbles in asset prices”, MaRBLe, Vol. 1, doi: 10.26481/marble.2016.v1.257.
LeRoy, S.F. and Porter, R.D. (1981), “The present-value relation: tests based on implied variance bounds”, Econometrica: Journal of the Econometric Society, pp. 555-574, doi: 10.2307/1911512.
Mayer, C. (2011), “Housing bubbles: a survey”, Annual Review of Economics, Vol. 3 No. 1, pp. 559-577, doi: 10.1146/annurev.economics.012809.103822.
Mazgir, I. (2007), “Speculation in capital markets: the recurrent of history”, Financial Political and Economic Commentary, No. 10, p. 9. Berghahn Books. ISBN 0857455818.
Mete, S., Ayben, K. and Ersoy, H. (2019), “Price bubble review in cryptocurrencies”, Journal of BRSA Banking and Financial Markets, Vol. 13 No. 1, pp. 105-120.
Mroua, M. and Trabelsi, L. (2020), “Causality and dynamic relationships between exchange rate and stock market indices in BRICS countries: panel/GMM and ARDL analyses”, Journal of Economics, Finance and Administrative Science, doi: 10.1108/JEFAS-04-2019-0054.
Narta, G.V., Cheema, M.A. and Szulczyk, K.R. (2018), “Searching for rational bubble footprints in the Singaporean and Indonesian stock markets”, Journal of Economics and Finance, Vol. 41 No. 3, pp. 529-552, doi: 10.1007/s12197-016-9369-3.
O'Neill, J. (2001), Building Better Global Economic BRICs.
Onifade, S.T., Çevik, S., Erdoğan, S., Asongu, S. and Bekun, F.V. (2020), “An empirical retrospect of the impacts of government expenditures on economic growth: new evidence from the Nigerian economy”, Journal of Economic Structures, Vol. 9 No. 1, pp. 1-13, doi: 10.1186/s40008-020-0186-7.
Phillips, P.C. and Yu, J. (2011), “Dating the timeline of financial bubbles during the subprime crisis”, Quantitative Economics, Vol. 2 No. 3, pp. 455-491, doi: 10.3982/QE82.
Phillips, P.C., Wu, Y. and Yu, J. (2011), “Explosive behavior in the 1990s Nasdaq: when did exuberance escalate asset values?”, International Economic Review, Vol. 52 No. 1, pp. 201-226, doi: 10.1111/j.1468-2354.2010.00625.x.
Phillips, P.C., Shi, S. and Yu, J. (2015), “Testing for multiple bubbles: historical episodes of exuberance and collapse in the S&P 500”, International Economic Review, Vol. 56 No. 4, pp. 1043-1078, doi: 10.1111/iere.12132.
Shi, S. (2017), “Speculative bubbles or market fundamentals? An investigation of US regional housing markets”, Economic Modelling, Vol. 66, pp. 101-111, doi: 10.1016/j.econmod.2017.06.002.
Shiller, R.J. (1980), “Do stock prices move too much to be justified by subsequent changes in dividends?”. Working Paper 0456, National Bureau of Economic Research, doi: 10.3386/w0456.
Shiller, R.J. (1981), “Alternative tests of rational expectations models: the case of the term structure”, Journal of Econometrics, Vol. 16 No. 1, pp. 71-87.
South African Government (2021). available at: https://www.gov.za/events/fifth-brics-summit-general-background.
Umar, M. and Sun, G. (2015), “Country risk, stock prices, and the exchange rate of the renminbi”, Journal of Financial Economic Policy, Vol. 7 No. 4, pp. 366--376, doi: 10.1108/JFEP-11-2014-0073.
Uzuner, G., Bekun, F.V. and Saint Akadiri, S. (2017), “Public expenditures and economic growth: was Wagner right? Evidence from Turkey”, Academic Journal of Economic Studies, Vol. 3 No. 2, pp. 36-40.
Wu, Y. (1995), “Are there rational bubbles in foreign exchange markets? Evidence from an alternative test”, Journal of International Money and Finance, Vol. 14 No. 1, pp. 27-46, doi: 10.1016/0261-5606(94)00002-I.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Hakan Yildirim, Saffet Akdag, Andrew Adewale Alola
This work is licensed under a Creative Commons Attribution 4.0 International License.
