 Early Warning Signals of Financial Stress: A “Wavelet-Based” Composite Indicators ApproachA chapter in Advances in Non-linear Economic Modeling, 2014, pp 115-138 from Springer Abstract: Abstract In this paper we exploit the usefulness of wavelet multi resolution analysis in providing early warning signals of financial stress (conditions). The proposed “wavelet-based” approach gives rise to a composite indicator obtained by aggregating several “scale-based” sub-indexes whose individual components are selected on the basis of their cross-correlations properties at different frequency bands. The performance of the “wavelet-based” composite indicator is assessed by evaluating its predictive power relative to the individual financial variables taken in isolation through an out-of-sample forecasting exercise for the US financial stress index. The findings indicate that the wavelet-based composite indicator largely outperforms any individual financial variable taken in isolation in early detecting financial stress at every horizon and that the gain tends to increase as the time horizon increases. Keywords: Discrete Wavelet Transform; Composite Index; Financial Stress; Composite Indicator; Individual Indicator (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:spr:dymchp:978-3-642-42039-9_3 Ordering information: This item can be ordered from DOI: 10.1007/978-3-642-42039-9_3 Access Statistics for this chapter More chapters in Dynamic Modeling and Econometrics in Economics and Finance from Springer |
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