Publication Type
Working Paper
Version
publishedVersion
Publication Date
11-2009
Abstract
A new recursive regression methodology is introduced to analyze the bubble characteristics of various financial time series during the subprime crisis. The methods modify a technique proposed in Phillips, Wu, and Yu (2011) and provide a technology for identifying bubble behavior with consistent dating of their origination and collapse. The tests serve as an early warning diagnostic of bubble activity and a new procedure is introduced for testing bubble migration across markets. Three relevant financial series are investigated, including a financial asset price (a house price index), a commodity price (the crude oil price), and one bond price (the spread between Baa and Aaa). Statistically significant bubble characteristics are found in all of these series. The empirical estimates of the origination and collapse dates suggest a migration mechanism among the financial variables. A bubble emerged in the real estate market in February 2002. After the subprime crisis erupted in 2007, the phenomenon migrated selectively into the commodity market and the bond market, creating bubbles which subsequently burst at the end of 2008, just as the effects on the real economy and economic growth became manifest. Our empirical estimates of the origination and collapse dates and tests of migration across markets match well with the general dateline of the crisis put forward in the recent study by Caballero, Farhi, and Gourinchas (2008a).
Keywords
Financial bubbles, crashes, date stamping, explosive behavio, ;migration, mildly explosive process, subprime crisis, timeline
Discipline
Econometrics | Finance | Finance and Financial Management
Research Areas
Econometrics
First Page
1
Last Page
40
Publisher
SMU Economics and Statistics Working Paper Series, No. 18-2009
City or Country
Singapore
Citation
PHILLIPS, Peter C. B. and YU, Jun.
Dating the Timeline of Financial Bubbles During the Subprime Crisis. (2009). 1-40.
Available at: https://ink.library.smu.edu.sg/soe_research/1153
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Comments
Published in Quantitative Economics, 2011, https://doi.org/10.3982/QE82