On the hysteresis of financial crises in the US: Evidence from S&P 500
Sónia R. Bentes
Physica A: Statistical Mechanics and its Applications, 2021, vol. 565, issue C
This paper examines the financial crisis durations in the US. Based on S&P 500 returns we investigate whether these crises exhibit long-memory or are merely transitional. To this end, we rely on continuous survival time models to gauge the hazard of ending a spell of contiguous return declines and test several specifications under the proportional hazards and the accelerated failure time assumptions. Our findings suggest that the log-normal accelerated failure time is the best model to describe the data, thus yielding a non-monotonic hazard that increases up to a maximum and, then decreases. We also found that spell lengths increase during recessions, when interest rates and prices are more volatile. Our main conclusion is that short spells of negative returns are mainly frictional, while long spells turn into structural crises that may trigger hysteresis.
Keywords: Hysteresis; Duration dependence; Negative returns; Survival models; Hazard rate (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:565:y:2021:i:c:s0378437120308815
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