Dating the Timeline of Financial Bubbles During the Subprime Crisis

By Peter C. B. Phillips, Jun Yu. 2011

564 citations recorded by the source corpus.

A new recursive regression methodology is introduced to analyze the bubble characteristics of various financial time series during the subprime crisis. 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. 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 characteristics 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 match well with the general datetimes of this crisis put forward in a recent study by Caballero, Farhi and Gourinchas (2008).

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/a40c062cbe482f0eaf30c4dbbfd0e91036ceb7b0

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

Citations in the corpus

From Hero to Zero: Evidence of Performance Reversal and Speculative Bubbles in German Renewable Energy Stocks (2013, unknown): “Despite its very recent introduction, economic applications of the sup ADF test are not limited to bubble phenomena on stock exchanges, but also cover price booms in commodity and housing markets (Phillips and Yu, 2011; Homm and Breitung, 2012).”
Agricultural Price Transmission Across Space and Commodities During Price Bubbles (2011, methodology): “I(1) and not I(0) (Diba and Grossman, 1988; Evans, 1991; Phillips and Magdalinos, 2009; Philips et al., 2009; Phillips and Yu, 2009; Gutierrez, 2010).”
Explosive bubbles in house prices? Evidence from the OECD countries (2015, unknown): “This procedure follows Phillips and Yu (2011) who conduct 3Add and subtract 1+RR ∆1Dt to Mt recursive right-sided augmented Dickey-Fuller (ADF) tests for explosiveness.”
Testing for Multiple Bubbles: Historical Episodes of Exuberance and Collapse in the S&P 500 (2015, unknown): “With regard to the latter, Phillips and Yu (2011) show that in certain dynamic structures a time-varying discount rate can induce temporary explosive behavior in asset prices.”
Speculative bubbles in agricultural commodity markets (2013, methodology): “Interestingly, a different expansion rule, given by ln ln 2 (t)/4, has been proposed in Phillips and Yu (2009b). case both the bias and the standard error become smaller, while minor changes are seen for t c .”
Bubbles in food commodity markets: Four decades of evidence ☆ (2014, methodology): “Phillips and Yu (2009) argue that the asymptotic distributions of the test statistics remain the same when a low lag order is used, so PY (2011) used a lag order of zero when conducting the forward recursive analysis with initialization of the first observation.”
Episodes of Exuberance in Housing Markets: In Search of the Smoking Gun (2016, background): “, Sargent (1987); Diba and Grossman (1988); LeRoy (2004)) Pt = P ∗ t +Bt, (8)”
Predictive regression under various degrees of persistence and robust long-horizon regression (2013, background): “Booms and financial exuberance are recurring features in economic activity and these phenomena can be well characterized over subperiods by mildly explosive processes, as described in Phillips et al. (2011) and Phillips and Yu (2011).”
Financialization and Structural Change in Commodity Futures Markets (2012, background): “10 Other studies test for the existence of price bubbles (Einloth, 2009; Phillips and Yu, 2010) or investigate the general impact of speculation in the recent commodity price movements without directly testing for statistical linkages between index fund positions and price movements (Kilian and Murp”