Stock Market Cycles and Volatility Regime Switch

Gagari Chakrabarti and Chitrakalpa Sen
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Gagari Chakrabarti: Presidency University
Chitrakalpa Sen: G D Goenka World Institute

Chapter Chapter 2 in Anatomy of Global Stock Market Crashes, 2012, pp 7-25 from Springer

Abstract: Abstract This chapter initiates the empirical dissection of stock market crises by an analysis of price movements and isolates two prominent stock market cycles over the study period. While the first cycle occurred during 1998–2005, a discernible second cycle took place from 2006 to 2011. The chapter analyzes the global trends around these cycles and explores the possible presence of intra- and inter-regional association and/or global financial integration. The intrinsic nature of different crises is further analyzed and compared in terms of volatility regime switch models where we inquire whether financial crises inevitably take the form of a structural break and whether such breaks follow some discernible pattern across the markets. The second cycle, rather than the first one appears to be truly ‘global’ and is marked by strong financial integration at the global level. Regional associations are however, not so robust. The association between financial crises and volatility breaks has been ambiguous and has varied from cycle to cycle. Such associations have been stronger over the second cycle where financial market changes have almost taken the form of volatility regime switch.

Keywords: Financial crises; Stock market cycle; Structural break; Volatility regime; ICSS test; Dynamic interlinkage (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spbchp:978-81-322-0463-3_2

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DOI: 10.1007/978-81-322-0463-3_2

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