Systematic Cyclicality of Systemic Bubbles: Evidence from the U.S. Commercial Banking System

Posted: 19 Aug 2012 Last revised: 12 Mar 2015

See all articles by Myeong Hyeon Kim

Myeong Hyeon Kim

Seoul National University of Science and Technology

Baeho Kim

Korea University Business School (KUBS)

Date Written: November 3, 2014

Abstract

This paper investigates the extent of vulnerability in the U.S. commercial banking system through a pro-cyclical interaction between the market-wide risk perception and system-wide asset management behavior. Based on a Markov regime-switching model, the proposed diagnostic framework clearly illustrates its ability to provide an early warning signal of the build-up and unwinding of fragility in the financial system and the real economy for a counter-cyclical structure of regulatory policy. Empirical results demonstrate an asset pricing implication, as the proposed systemic bubble index is a significant factor that affects the investment opportunity set of stock investors for financial firms but not for non-financial firms.

Keywords: Systemic bubble; Financial crisis; Cyclicality; Early warning signal; Markov regime-switching model

JEL Classification: C13, G01, G21, G28

Suggested Citation

Kim, Myeong Hyeon and Kim, Baeho, Systematic Cyclicality of Systemic Bubbles: Evidence from the U.S. Commercial Banking System (November 3, 2014). Journal of Macroeconomics, 42 (2014) 281-297. Available at SSRN: https://ssrn.com/abstract=2131669 or http://dx.doi.org/10.2139/ssrn.2131669

Myeong Hyeon Kim

Seoul National University of Science and Technology ( email )

172 Gongreuing 2-dong, Nowon-gu
Seoul, 139-746
Korea, Republic of (South Korea)

Baeho Kim (Contact Author)

Korea University Business School (KUBS) ( email )

Anam-dong, Sungbuk-Gu
Korea University Business School
Seoul, 136-701
82-2-3290-2626 (Phone)
82-2-922-7220 (Fax)

HOME PAGE: http://biz.korea.ac.kr/~baehokim

Register to save articles to
your library

Register

Paper statistics

Abstract Views
487
PlumX Metrics