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Regime Switching: Italian Financial Markets over a Century

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Author Info
Margherita Velucchi () (Università degli Studi di Firenze, Dipartimento di Statistica)

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Abstract

The frequency of crashes and the magnitude of crises in international financial markets are growing more severe over time. Recent financial crises are not singular events portrayed in recent accounts, rather, they erupt in circumstances that are very similar to the economic and financial environments of the earlier eras. This paper analyzes the Italian stock market in two very peculiar periods (1901-1911 and 1993-2004): the “Second” and the “Third Industrial Revolution”. We use Markov Switching Models to test whether the Italian stock market volatility has increased in the long run and if it can be represented by different volatility regimes. We find that volatility regimes exist; that Banking sector has a central role and “New Economy” sectors perform quite well while traditional sectors do not, in both periods.

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Paper provided by Universita' degli Studi di Firenze, Dipartimento di Statistica "G. Parenti" in its series Econometrics Working Papers Archive with number wp2007_03.

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Date of creation: May 2007
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Handle: RePEc:fir:econom:wp2007_03

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Related research
Keywords: Markov Switching Models; Volatility Regimes; Second and Third Industrial Revolutions;

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications

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References listed on IDEAS
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  1. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR, CES, MSH, vol. 16(32), pages 51-82, 04. [Downloadable!] (restricted)
  2. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March. [Downloadable!] (restricted)
  3. Billio, Monica & Pelizzon, Loriana, 2000. "Value-at-Risk: a multivariate switching regime approach," Journal of Empirical Finance, Elsevier, vol. 7(5), pages 531-554, December. [Downloadable!] (restricted)
  4. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March. [Downloadable!] (restricted)
  5. Terence C. Mills & Ping Wang, 2003. "Multivariate Markov Switching Common Factor Models for the UK," Bulletin of Economic Research, Blackwell Publishing, vol. 55(2), pages 177-193, 04. [Downloadable!] (restricted)
  6. Rabemananjara, R & Zakoian, J M, 1993. "Threshold Arch Models and Asymmetries in Volatility," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(1), pages 31-49, Jan.-Marc. [Downloadable!] (restricted)
  7. Baillie, Richard T. & Bollerslev, Tim & Mikkelsen, Hans Ole, 1996. "Fractionally integrated generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 74(1), pages 3-30, September. [Downloadable!] (restricted)
  8. Brock, William & Lakonishok, Josef & LeBaron, Blake, 1992. " Simple Technical Trading Rules and the Stochastic Properties of Stock Returns," Journal of Finance, American Finance Association, vol. 47(5), pages 1731-64, December. [Downloadable!] (restricted)
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  9. Hamilton, James D. & Susmel, Raul, 1994. "Autoregressive conditional heteroskedasticity and changes in regime," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 307-333. [Downloadable!] (restricted)
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  10. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April. [Downloadable!] (restricted)
  11. Schaller, Huntley & van Norden, Simon, 1997. "Regime Switching in Stock Market Returns," Applied Financial Economics, Taylor and Francis Journals, vol. 7(2), pages 177-91, April. [Downloadable!] (restricted)
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