Are Critical Slowing Down Indicators Useful to Detect Financial Crises?

Abstract : In this article, we consider financial markets as complex dynamical systems, and check whether the critical slowing down indicators can be used as early warning signals to detect a phase transition. Using various rolling windows, we analyze the evolution of three indicators: i) First-order autocorrelation, ii) Variance, and iii) Skewness. Using daily data for ten European stock exchanges plus the United States, and focusing on the Global Financial Crisis, our results are mitigated and depend both on the series used and the indicator. Using the main log-indices, critical slowing down indicators seem weak to predict the Global Financial Crisis. Using cumulative returns, for almost all countries, an increase in variance and skewness does precede the crisis. However, first-order autocorrelations of both log-indices and cumulative returns do not provide any useful information about the Global Financial Crisis. Thus, only some of the reported critical slowing down indicators may have informational content, and could be used as early warnings.
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Chapitre d'ouvrage
Monica Billio; Loriana Pelizzon; Roberto Savona. Systemic Risk Tomography: Signals, Measurement and Transmission Channels, ISTE Press Ltd; Elsevier Ltd, pp.73-92, 2016, 9780081011768. 〈10.2139/ssrn.2861258〉. 〈https://www.elsevier.com/books/systemic-risk-tomography/billio/978-1-78548-085-0〉
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https://halshs.archives-ouvertes.fr/halshs-01505202
Contributeur : Umr 8174 Centre d'Économie de La Sorbonne <>
Soumis le : mardi 11 avril 2017 - 09:46:25
Dernière modification le : mardi 13 novembre 2018 - 01:15:43

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Hayette Gatfaoui, Isabelle Nagot, Philippe De Peretti. Are Critical Slowing Down Indicators Useful to Detect Financial Crises?. Monica Billio; Loriana Pelizzon; Roberto Savona. Systemic Risk Tomography: Signals, Measurement and Transmission Channels, ISTE Press Ltd; Elsevier Ltd, pp.73-92, 2016, 9780081011768. 〈10.2139/ssrn.2861258〉. 〈https://www.elsevier.com/books/systemic-risk-tomography/billio/978-1-78548-085-0〉. 〈halshs-01505202〉

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