Historical financial analogies of the current crisis

Julian Andrada-Felix (), Fernando Fernández-Rodríguez and Simon Sosvilla-Rivero
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Fernando Fernández-Rodríguez: Universidad de Las Palmas de Gran Canaria, Spain

No 11-08, Working Papers from Asociación Española de Economía y Finanzas Internacionales

Abstract: This paper tries to shed light on the historical analogies of the current crisis. To that end we compare the current sample distribution of Dow Jones Industrial Average Index returns for a 769-day period (from 15 September 2008, the Lehman Brothers bankruptcy, to September 2011), with all historical sample distributions of returns computed with a moving window of 769 days in the 2 January 1900 to 12 September 2008 period. Using a Kolmogorov-Smirnov and a x2 homogeneity tests which have the null hypothesis of equal distribution we find that the stock market returns distribution during the current crisis would be similar to several past periods of severe financial crises that evolved into intense recessions, being the sub-sample from 28 May 1935 to 17 Jun 1938 the most analogous episode to the current situation. Furthermore, when applying the procedure proposed by Diebold, Gunther and Tay (1998) for comparing densities of sub-samples, we obtain additional support for our findings and discover a period from 10 September 1930 to 13 October 1933 where the severity of the crisis overcomes the current situation having sharper tail events. Finally, when comparing historical market risk with the current risk, we observe that the current market risk has only been exceeded at the beginning of the Great Depression.

Keywords: Financial crisis; Great Recession; Great Depression (search for similar items in EconPapers)
JEL-codes: C58 E32 G15 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2011-11
New Economics Papers: this item is included in nep-his, nep-pke and nep-rmg
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http://www.aeefi.com/RePEc/pdf/defi11-08.pdf (application/pdf)

Related works:
Journal Article: Historical financial analogies of the current crisis (2012)
Working Paper: Historical financial analogies of the current crisis (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:aee:wpaper:1108

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