An extreme value analysis of the last century crises across industries in the U.S. economy

Marco Bee, Massimo Riccaboni () and Luca Trapin

Journal of Economic Dynamics and Control, 2017, vol. 81, issue C, 65-78

Abstract: The two large scale crises that hit the world economy in the last century, i.e. the Great Depression and the Great Recession, have similar outbreak and recovery patterns with respect to several macroeconomic variables. In particular, the largest depressions are likely to be accompanied by stock-market crashes. This study investigates the behavior of the U.S. stock market before, during and after deep downturns, focusing particularly on the tails of the return distribution. We develop two automatic procedures to identify multiple change-points in the tail of financial time series as well as in the co-crash and co-boom probabilities of different markets. We then apply our methodology to twelve time series representative of the sectors of the U.S. economy. We find that regime shifts in the lower tail of the distribution tend to co-occur before deep downturns. Our results contribute to a better understanding of the origin and systemic nature of large scale events to make policy interventions more timely and effective.

Keywords: Financial crisis; Extreme value theory; Change-points detection; U.S. economy (search for similar items in EconPapers)
JEL-codes: C55 C58 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188917300209
Full text for ScienceDirect subscribers only

Related works:
Working Paper: An extreme value analysis of the last century crises across industries in the U.S. economy (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:81:y:2017:i:c:p:65-78

DOI: 10.1016/j.jedc.2017.01.012

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().