The walking debt crisis

Wegener, Christoph; Kruse, Robinson; Basse, Tobias

doi:10.1016/j.jebo.2017.10.008

Cited by 29 publications

(23 citation statements)

References 48 publications

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“…Only in the case of the German bank stock market index the timing of structural change observed (November 2009) coincides with the global financial crisis using the three-factor model. Given the role of the banking industry in this crisis, our result should probably not be regarded as a major surprise (see, for example, (Bullard et al 2009;Wegener et al 2019)). Examining the technology stock market index the two breakpoint dates identified correspond with the recovery after the busting of the dot-com bubble and with the European sovereign debt crisis (May 2003 respectively June 2010) estimating the three-factor model.…”

Section: Methodsmentioning

confidence: 78%

The Stability of Factor Sensitivities of German Stock Market Sector Indices: Empirical Evidence and Some Thoughts about Practical Implications

Wegener

Basse

2019

JRFM

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This empirical study estimates 18 single and 18 three-factor models and then tests for structural change. Break dates are identified where possible. In general, there is some empirical evidence for parameter instabilities of the estimated beta coefficients. In most cases there is no or one break point, and in some cases, there are two structural breaks examining the three factor models. The estimated factor sensitivities of single beta models seem to be even less strongly affected by structural change. Consequently, beta factors are probably more stable than some observers might believe. The break dates that have been identified generally seem to coincide with crises or recoveries after stock market slumps. This empirical finding is compatible with the point of view that bull-markets or bear-markets could matter when estimating beta coefficients. In general, the timing of structural change often seems to coincide with either the bursting of the dot-com bubble or the recovery of stock prices thereafter. The banking industry is the most notable exception. In this sector of the German economy, the global financial meltdown and the sovereign debt crisis in Europe have been of high relevance. Consequently, the internet hype of the late 1990s and the early 2000s seems to be more important for the German stock market than the US subprime debacle and the accompanying European sovereign debt crisis.

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Section: Methodsmentioning

confidence: 78%

The Stability of Factor Sensitivities of German Stock Market Sector Indices: Empirical Evidence and Some Thoughts about Practical Implications

Wegener

Basse

2019

JRFM

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“…However, Wegener et al . () use a right‐tailed unit root test and document evidence in favour of explosiveness – also for the Greek–German spread. This might be explained by safe‐haven effects on the one side and fast increasing risk factors on the other side.…”

Section: European Government Bond Yield Spreadsmentioning

confidence: 99%

“…But also other asset class prices – like commodity, housing and energy prices – might contain explosive roots due to speculation (or even bubbles) (see, for example, Shi and Arora, ; Figuerola‐Ferretti et al ., ; Engsted et al ., ). Furthermore, explosiveness in macroeconomic variables like Debt/GDP ratios (see, for example, Yoon, ), inflation (see, for example, Casella, ) and government bond yield spreads (see Wegener et al ., ) indicates economically relevant interpretations like, for example, unsustainable debt policies, hyperinflation or sovereign debt crises. Explosive behaviour in economic and financial variables is typically a temporary rather than a permanent feature.…”

Section: Introductionmentioning

confidence: 99%

“…The motivation of this example is rooted in the literature: While some studies find evidence for long memory in interest rate differentials (see, for example, Baum and Barkoulas, ; Sibbertsen et al ., ), a recent contribution by Wegener et al . () reports evidence for explosive spreads during the financial and the sovereign debt crisis. In order to bring both strands together, we allow for strong dependent innovations within a right‐tailed unit root test applied to the spreads.…”

Section: Introductionmentioning

confidence: 99%

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Explosive behaviour and long memory with an application to European bond yield spreads

Kruse

Wegener

2018

Scottish J Political Eco

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This article deals with the interplay of explosive behaviour and long memory. We conduct Monte Carlo simulations and study the finite-sample properties of the popular unit root test by Phillips et al. (2011) against explosive alternatives. This test exhibits severe upward size distortions under the presence of strongly autocorrelated residuals. We propose the usage of a set of adjusted critical values which leads to a size-controlled test with increased power. As a complement, we consider the Lagrange Multiplier test against long memory by Tanaka (1999). We study European government bond yield spreads during the financial crisis.

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“…The crash detection capability of the PSY procedure has been noted in several recent empirical articles by the authors (PSY, 2015a; PS, ; Shi, ; Deng et al ., ) and by many other researchers considering stock prices, exchange rates and other financial time series where abrupt crashes and sustained collapses have occurred (see, e.g. Yiu and Jin, ; Fantazzini, ; Hu and Oxley, ; Hu and Oxley, ; Wegener, Kruse and Basse, ). This capability of PSY is further illustrated in this paper with an application of the procedure to the S&P500 stock market over the period of January 2005 to March 2009.…”

Section: Introductionmentioning

confidence: 98%

Detecting Financial Collapse and Ballooning Sovereign Risk

Phillips

Shi²

2019

Oxf Bull Econ Stat

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This paper proposes a new model for capturing discontinuities in the underlying financial environment that can lead to abrupt falls, but not necessarily sustained monotonic falls, in asset prices. This notion of price dynamics is consistent with existing understanding of market crashes, which allows for a mix of market responses that are not universally negative. The model may be interpreted as a martingale composed with a randomized drift process that is designed to capture various asymmetric drivers of market sentiment. In particular, the model is capable of generating realistic patterns of price meltdowns and bond yield inflations that constitute major market reversals while not necessarily being always monotonic in form. The recursive and moving window methods developed in Phillips, Shi and Yu (2015a,b; PSY), which were designed to detect exuberance in financial and economic data, are shown to have detective capacity for such meltdowns and expansions. This characteristic of the PSY tests has been noted in earlier empirical studies by the present authors and other researchers but no analytic reasoning has yet been given to explain why methods intended to capture the expansionary phase of a bubble may also detect abrupt and broadly sustained collapses. The model and asymptotic theory developed in the present paper together explain this property of the PSY procedures. The methods are applied to analyse S&P 500 stock prices and sovereign risk in European Union countries over 2001–16 using government bond yields and credit default swap (CDS) premia. A pseudo real‐time empirical analysis of these data shows the effectiveness of the monitoring strategy in capturing key events and turning points in market risk assessment.

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The walking debt crisis

Cited by 29 publications

References 48 publications

The Stability of Factor Sensitivities of German Stock Market Sector Indices: Empirical Evidence and Some Thoughts about Practical Implications

The Stability of Factor Sensitivities of German Stock Market Sector Indices: Empirical Evidence and Some Thoughts about Practical Implications

Explosive behaviour and long memory with an application to European bond yield spreads

Detecting Financial Collapse and Ballooning Sovereign Risk

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