Historical financial analogies of the current crisis

Thumbnail Image
Full text at PDC
Publication Date
Advisors (or tutors)
Journal Title
Journal ISSN
Volume Title
Google Scholar
Research Projects
Organizational Units
Journal Issue
This 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 30 September 2011), with all historical sample distributions of returns computed using a moving window of 769 days in the 2 January 1900 to 12 September 2008 period. Using a Kolmogorov-Smirnov and a χ 2 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 subsamples, 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 overcome 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 in the beginning of the Great Depression.
Este trabajo intenta arrojar luz sobre las analogías históricas de la crisis actual. Para ello se compara la distribución de los rendimientos del Índice Dow Jones Industrial Average durante un período de 769 días (del 15 de septiembre de 2008, la quiebra de Lehman Brothers, hasta septiembre de 2011), con todas las distribuciones históricas posibles de rendimientos calculados con una ventana móvil de 769 días desde el 2 de enero de 1900 al 12 de septiembre de 2008. Mediante el uso de un contraste no paramétrico Kolmogorov-Smirnov y de un contraste de Chi cuadrado, ambos de homogeneidad en la distribución, encontramos que la distribución de rendimientos durante la crisis actual sería similar a varios períodos anteriores de grave crisis financiera que evolucionaron hacia intensas recesiones, siendo el episodio que abarca del 28 de mayo de 1935 al 17 de junio de 1938 el más análogo a la situación actual. Además, al aplicar el procedimiento propuesto por Diebold, Gunther y Tay (1998) para comparar las densidades de sub-muestras, se obtiene un apoyo adicional para nuestros hallazgos y se detecta un subperíodo entre el 10 de septiembre de 1930 y el 13 de octubre de 1933, donde la gravedad de la crisis supera la situación actual, presentando eventos más pronunciados en las colas. Finalmente, al comparar el riesgo de mercado histórico con el riesgo actual, se observa que el riesgo de mercado actual sólo ha sido superado por el experimentado al comienzo de la Gran Depresión.
Artzner, P., J. Delbaen, M. Ebert and D. Heath, “Coherent Measures of Risk”, Mathematical Finance 9 (1999), 203-28. Baur, M. N., S. Quintero and E. Stevens, “The 1986-1988 Stock Market: Investor sentiment or fundamentals?”,Managerial and Decision Economics 17 (1998), 319-29. Diebold, F., T. Gunther and A. Tay, “Evaluating Density Forecasts with Applications to Financial Risk Management”, International Economic Review 39 (1998), 863-83. Dowd, K., Measuring Market Risk. Chichester: John Wiley & Sons, 2005 Eichengreen, B., A. Rose and C. WyplosZ, C., “Exchange Market Mayhem: The Antecedents and Aftermath of Speculative Attacks”, Economic Policy 21 (1995), 249-96. Fisher, I., “The Debt-Deflation Theory of Great Depressions”, Econometrica 1 (1933), 337-57. Grossman, S. J. and R. J. SHILLER, “The Determinants of the Variability of Stock Market Prices”, American Economic Review 71 (1981), 222-27. Kaminsky, G. L. and C. M. Reinhart, “The Twin Crises: The Causes of Banking and Balance of Payments Problems”, American Economic Review 89 (1999), 473-500. Kindleberger, C. P. and R. Z. ALIBER, Maniacs, Panics, and Crashes, Hoboken, New Jersey: Wiley, 5th ed., 2005. Owen, D. B., Handbook of Statistical Tables, Reading, Massachusetts: Addison-Wesley, 1962. Reinhart, C. M and K. S Rogoff, This Time Is Different: Eight Centuries of Financial Folly, Princeton, New Jersey: Princeton University Press, 2009a. Reinhart, C. M and K. S ROGOFF, “The Aftermath of Financial Crises”, American Economic Review 99 (2009b), 466-72. Rohatgi, V. K., An Introduction to Probability Theory and Mathematical Statistics, New York: John Wiley and Sons, 1976. Shachmurove, Y., “Reoccurring Financial Crises in the United States”, Working Paper No. 11-006, Penn Institute for Economic Research, 2011.