Real time monitoring of asset markets

Bubbles and crises

Peter C. B. Phillips, Shuping Shi

Research output: Chapter in Book/Report/Conference proceedingChapter

2 Citations (Scopus)

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 et al. (2015a,b), 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 (Phillips and Shi, 2017; Phillips et al., 2015a,b) 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. These applications are implemented using the psymonitor R package (Phillips et al., 2018) developed in conjunction with this chapter.

Original languageEnglish
Title of host publicationFinancial, macro and micro econometrics using R
EditorsHrishikesh D. Vinod, C. R. Rao
Place of PublicationAmsterdam, Netherlands
PublisherElsevier
Chapter2
Pages61-80
Number of pages20
ISBN (Print)9780128202500
DOIs
Publication statusPublished - 2020

Publication series

NameHandbook of Statistics
PublisherElsevier
Volume42
ISSN (Print)0169-7161

Keywords

  • Bubbles
  • Crises
  • Real-time detection
  • Recursive evolving test

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