Analysis of drawdowns and drawups in the US$ interest-rate market

Riccardo Rebonato and Valerio Gaspari

Quantitative Finance, 2006, vol. 6, issue 4, 297-326

Abstract: We investigate the statistical properties of drawdowns and drawups in interest rates (US$) using over 10 years' worth of daily data. We analyse the nature of the drawdowns in terms of length of runs, magnitude of the individual price moves and coincidence of their occurrence across the maturity spectrum. We document significant positive autocorrelation for several holding periods, pronounced term structure effects and an unexpectedly low degree of coincidence in the occurrence of drawdowns across the maturity spectrum (despite high correlation in daily moves). By drawing on previous work by Rebonato et al. (2005) we try to provide a coherent explanation for a complex set of empirical observations. An essential ingredient of this explanation appears to be the existence of at least two distinct types (normal and excited) of price dynamics, with different serial correlation properties. We concur with the results by Sornette and Johansen (Significance of log-periodic precursors to financial crashes. Quant. Finance, 2001, 1, 452-471) for different asset classes that very large drawdowns belong to the 'undemocratic' case, and may therefore result from an amplification mechanism.

Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/14697680600680555 (text/html)
Access to full text is restricted to subscribers.

Related works:
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:taf:quantf:v:6:y:2006:i:4:p:297-326

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RQUF20

DOI: 10.1080/14697680600680555

Access Statistics for this article

Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral

More articles in Quantitative Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().