Dating the timeline of financial bubbles during the subprime crisis

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Peter Phillips () and Jun Yu () Finance Working Papers from East Asian Bureau of Economic Research Abstract: A recursive regression methodology is used to analyze the bubble characteristics of various financial time series during the subprime crisis.

The methods provide a technology for identifying bubble behavior and consistent dating of their origination and collapse.

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.

Our empirical estimates of the origination and collapse dates match well with the general datetimes 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.

When agents are risk-averse they generate forecasts of the conditional variance of a stock’s return.

Recursive updating of ..." This paper demonstrates that an asset pricing model with least-squares learning can lead to bubbles and crashes as endogenous responses to the fundamentals driving asset prices.

The methods modify a technique proposed in Phillips, Wu and Yu (2010) and provide a technology for identifying bubble behavior and consistent dating of their origination and collapse.

The tests also serve as an early warning diagnostic of bubble activity.

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Keywords: Financial bubbles; Crashes; Date stamping; Explosive behavior; Mildly explosive process; Subprime crisis; Timeline (search for similar items in Econ Papers) JEL-codes: C15 C12 (search for similar items in Econ Papers) New Economics Papers: this item is included in nep-ets, nep-sea and nep-ure Date: 2010-09 References: View references in Econ Papers View complete reference list from Cit Ec Citations View citations in Econ Papers (9) Track citations by RSS feed Published in Quantitative Economics (November 2010), 1(2): 455-491 Downloads: (external link) Related works: Journal Article: Dating the timeline of financial bubbles during the subprime crisis (2011) Working Paper: Dating the Timeline of Financial Bubbles During the Subprime Crisis (2009) Working Paper: Dating the Timeline of Financial Bubbles During the Subprime Crisis (2009) This item may be available elsewhere in Econ Papers: Search for items with the same title.