Real Time Monitoring of Asset Markets: Bubbles and Crises

25 Pages Posted: 14 Dec 2018

See all articles by Peter C. B. Phillips

Peter C. B. Phillips

Yale University - Cowles Foundation; University of Auckland Business School; University of Southampton; Singapore Management University - School of Economics

Shuping Shi

Macquarie University

Date Written: November 22, 2018

Abstract

While each financial crisis has its own characteristics, there is now widespread recognition that crises arising from sources such as financial speculation and excessive credit creation do inflict harm on the real economy. Detecting speculative market conditions and ballooning credit risk in real time is therefore of prime importance in the complex exercises of market surveillance, risk management, and policy action. This chapter provides an R implementation of the popular real-time monitoring strategy proposed by Phillips, Shi and Yu in the International Economic Review (2015), along with a new bootstrap procedure designed to mitigate the potential impact of heteroskedasticity and to effect family-wise size control in recursive testing algorithms. This methodology has been shown effective for bubble and crisis detection and is now widely used by academic researchers, central bank economists, and fiscal regulators. We illustrate the effectiveness of this procedure with applications to the S&P financial market and the European sovereign debt sector using the psymonitor R package developed in conjunction with this chapter.

Keywords: Bubbles, Crises, Real-time detection, Recursive evolving test

JEL Classification: C12, C14

Suggested Citation

Phillips, Peter C. B. and Shi, Shuping, Real Time Monitoring of Asset Markets: Bubbles and Crises (November 22, 2018). Cowles Foundation Discussion Paper No. 2152, Available at SSRN: https://ssrn.com/abstract=3299498 or http://dx.doi.org/10.2139/ssrn.3299498

Peter C. B. Phillips (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3695 (Phone)
203-432-5429 (Fax)

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand
+64 9 373 7599 x7596 (Phone)

University of Southampton

Southampton, SO17 1BJ
United Kingdom

Singapore Management University - School of Economics

90 Stamford Road
178903
Singapore

Shuping Shi

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

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