Can the Probability of Being in a Crisis Phase Detect the Bursting of Speculative Bubbles?

Abdessamad OUCHEN


The choice of our topic is due to the recurrence of financial crises. The world today is deeply unstable and subject to uncertainties and big surprises. Finance is known for two regimes: state of stability and state of crisis. Therefore, in order to understand the cyclical asymmetries in the series of yields of the main indices of the world, one has to resort to non-linear specifications that distinguish between upswings and downturns. We estimated a switching model in both states and with a specification autoregressive of order 1, the monthly first difference of the S&P 500 during the period running from December 1999 to December 2015. This model allowed us to confirm the existence of two regimes distinct on the Wall Street Stock Exchange, namely the state of crisis and that of stability. It allowed the detection of three bubbles: the bubble (1998-2000), the real estate bubble (1995-2006) and the Chinese financial bubble (2014-2015). Indeed, the probability of being in crisis phase (probability smoothing) is greater than 0.6 after the crisis of TMT (2000-2001), after the financial crisis between 2007 and 2008, after the European debt crisis in 2010 and after the Chinese financial crisis in 2015.

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