Historical financial analogies of the current crisis
AbstractThis 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.
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Bibliographic InfoPaper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 11-08.
Length: 19 pages
Date of creation: Nov 2011
Date of revision:
Financial crisis; Great Recession; Great Depression;
Other versions of this item:
- Andrada-Félix, Julián & Fernández-Rodríguez, Fernando & Sosvilla-Rivero, Simón, 2012. "Historical financial analogies of the current crisis," Economics Letters, Elsevier, vol. 116(2), pages 190-192.
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-21 (All new papers)
- NEP-HIS-2011-11-21 (Business, Economic & Financial History)
- NEP-PKE-2011-11-21 (Post Keynesian Economics)
- NEP-RMG-2011-11-21 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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