 When does the stock market recover from a crisis?Yanglin Li, Shaoping Wang and Qing Zhao Finance Research Letters, 2021, vol. 39, issue C Abstract: This paper develops a backward infimum augmented Dickey-Fuller (BIADF) test for identifying the financial crises and estimating the market recovery dates in conjunction with a backward sup ADF (BSADF) test to estimate the bubble origination and termination dates. Consistency of these date estimators is established. The new method is not only easy-to-implement and computationally efficient, but can accurately estimate the market recovery date. Simulations show that when σ=1, the rates of successful crisis detection are over 98.7%. We apply the tests to the US and China’s stock markets, and the results show that our method can successfully capture typical financial crises. For the US stock market, the BIADF test successfully detects the Black Monday crash of 1987 and the Dot Com crash in the early 2000s. The recovery dates are February 1991, and September 2005, respectively. For China’s stock market, the 2008 financial crisis and the 2015 stock market disaster are detected, and the corresponding recovery dates are April 29, 2011, and June 24, 2016. Keywords: Bubble-led crisis; Market recovery date; Market normalcy; Double recursive regression (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:39:y:2021:i:c:s1544612319314448 DOI: 10.1016/j.frl.2020.101642 Access Statistics for this article Finance Research Letters is currently edited by R. Gençay More articles in Finance Research Letters from Elsevier |
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