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A0583
Title: New stylized facts of financial exuberance Authors:  Marco Kerkemeier - University of Hagen (Germany) [presenting]
Christoph Wegener - Leuphana University Lueneburg (Germany)
Robinson Kruse-Becher - FernUniversität in Hagen (Germany)
Abstract: Financial asset prices exhibit temporary mild explosive behaviour. We investigate the behaviour of daily (real) financial returns during exuberance by using a broad data set consisting of equity indices, precious metals, oil, real estate and cryptocurrencies. Adding to common knowledge about stylized facts during normal market phases, we explicitly study the typical behaviour of returns during these explosive periods. Explosive phases are identified and date-stamped by using the popular Dickey-Fuller based procedures. We distinguish rising prices from collapsing phases. Returns of both subperiods are studied for recurring characteristics. Results for explosive phases are benchmarked against nonexplosive periods. We study features of explosive phases, i.e. duration, magnitude of explosiveness and types of collapsing behaviour. We apply a battery of econometric procedures to establish potential stylized facts (e.g., autocorrelation, distributional characteristics, volatility persistence). Our findings are applied to risk management, in particular to Value at Risk and Expected Shortfall estimation and forecasting. Especially collapsing phases are relevant in this context. We investigate to what extent improvements are achievable by accounting for potentially different characteristics during explosive phases. Finally, in a Monte Carlo simulation study, we reinvestigate the empirical power of popular bubble tests under realistic circumstances matching our new findings.