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Dating the Timeline of Financial Bubbles During the Subprime Crisis

Peter Phillips and Jun Yu

Working Papers from Singapore Management University, Sim Kee Boon Institute for Financial Economics

Abstract: A recursive regression methodology is used to analyze the bubble characteristics of various fi- nancial time series during the subprime crisis. The methods provide a technology for identifying bubble behavior and consistent dating of their origination and collapse. Seven relevant financial series are investigated, including three financial assets (the Nasdaq index, home price index and asset-backed commercial paper), two commodities (the crude oil price and platinum price), one bond rate (Baa), and one exchange rate (Pound/USD). Statistically significant bubble charac- teristics are found in all of these series. The empirical estimates of the origination and collapse dates suggest an interesting migration mechanism among the financial variables: a bubble first emerged in the equity market during mid-1995 lasting to the end of 2000, followed by a bubble in the real estate market between January 2001 and July 2007 and in the mortgage market between November 2005 and August 2007. After the subprime crisis erupted, the phenomenon migrated selectively into the commodity market and the foreign exchange market, creating bubbles which subsequently burst at the end of 2008, just as the effects on the real economy and economic growth became manifest. Our empirical estimates of the origination and collapse dates support strongly the general features of the scenario of this crisis put forward in a recent study by Caballero, Farhi and Gourinchas (2008).

Keywords: Financial bubbles; Crashes; Date stamping; Explosive behavior; Mildly explosive process; Subprime crisis; Timeline. (search for similar items in EconPapers)
JEL-codes: C15 G12 (search for similar items in EconPapers)
Pages: 33 Pages
Date: 2009-04
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Published in SMU-SKBI CoFie Working Paper

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http://www.smu.edu.sg/institutes/skbife/downloads/ ... ubprime%20Crisis.pdf

Related works:
Journal Article: Dating the timeline of financial bubbles during the subprime crisis (2011) Downloads
Working Paper: Dating the Timeline of Financial Bubbles during the Subprime Crisis (2010) Downloads
Working Paper: Dating the Timeline of Financial Bubbles During the Subprime Crisis (2009) Downloads
Working Paper: Dating the Timeline of Financial Bubbles During the Subprime Crisis (2009) Downloads
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