Historical Financial Analogies of the Current Crisis

19 Pages Posted: 12 Nov 2011

See all articles by Julián Andrada Félix

Julián Andrada Félix

University of Las Palmas de Gran Canaria - Faculty of Economic Science

Fernando Fernández Rodríguez

University of Las Palmas de Gran Canaria - Faculty of Economic Science

Simon Sosvilla-Rivero

UCM Institute for Economic Analysis

Date Written: November 11, 2011

Abstract

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 September 2011), with all historical sample distributions of returns computed with a moving window of 769 days in the 2 January 1900 to 12 September 2008 period. Using a Kolmogorov-Smirnov and a 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 sub-samples, 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 overcomes 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 at the beginning of the Great Depression.

Keywords: Financial crisis, Great Recession, Great Depression

JEL Classification: C58, E32, G15

Suggested Citation

Andrada Félix, Julián and Fernández Rodríguez, Fernando and Sosvilla-Rivero, Simon, Historical Financial Analogies of the Current Crisis (November 11, 2011). Available at SSRN: https://ssrn.com/abstract=1958124 or http://dx.doi.org/10.2139/ssrn.1958124

Julián Andrada Félix

University of Las Palmas de Gran Canaria - Faculty of Economic Science ( email )

E-35017 Las Palmas
Spain
+34 928 45 59 89 (Phone)
+34 928 45 18 29 (Fax)

Fernando Fernández Rodríguez

University of Las Palmas de Gran Canaria - Faculty of Economic Science ( email )

Campus de Tafira
E-35017 Las Palmas
Spain
+34 928 45 18 02 (Phone)
+34 928 45 18 29 (Fax)

Simon Sosvilla-Rivero (Contact Author)

UCM Institute for Economic Analysis ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

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