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Actual and potential market risks during the stock market turmoil 2007--2008

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  • Mikael Bask
  • Anna Widerberg

Abstract

The aim of this article is to demonstrate how the change in actual and potential market risks in the Dow Jones Industrial Average (DJIA) during the 2-year period 2007 to 2008 can be analysed with the help of ( λ ,  σ -super-2)-analysis. In the empirical analysis, the average of the Lyapunov exponents for the dynamic system generating DJIA returns is used as the stability measure, λ , whereas the squared DJIA return is used as the variability measure, σ -super-2. The main findings are as follows: (i) the potential market risk in the DJIA did not fluctuate that much during 2007, with the exceptions of early fall and near the end of the year; (ii) the potential market risk fluctuated a lot during 2008, especially in early August and in the middle of September; and (iii) the actual market risk in the DJIA was considerably higher near the end of 2008, especially in October, compared with the rest of the period.

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File URL: http://hdl.handle.net/10.1080/09603107.2011.613758
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 22 (2012)
Issue (Month): 5 (March)
Pages: 339-349

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Handle: RePEc:taf:apfiec:v:22:y:2012:i:5:p:339-349

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