Examining “The Financial Crisis” with Jump Test and HAR-RV Models

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Presentation transcript:

Examining “The Financial Crisis” with Jump Test and HAR-RV Models

Motivation Examine how jumps and HAR-RV model differ in the financial sector data from 1997 to July 2007 compared to post July 2007 and post September 15 2008

Financial Sector Data JPM (JP Morgan) BK (new) (Bank of New York Mellon) BAC (Bank of America) AXP (American Express) ALL (Allstate) Others Not Included Because of Data Differences

Financial Sector Data Equally Weighted Modify data so that stock splits do not affect the RV Portfolio1: 4/10/1997 through 1/7/2009 (1 share of each stock) Portfolio2: 4/10/1997 through 1/7/2009 (equally weighted)

None Weighted Portfolio

Equally Weighted Portfolio

Jump Test Compare # of Jump Days as Percentage of Days In All Periods Using Barndorff-Nielsen and Shepard Examine for Particular Equities and Financial Porfolio

Jumps Post July Non Weighted

Jumps Post July Weighted

Jumps: After Sept 15 Non weighted

Jumps: Sept 15 Weighted

Results

HAR-RV

RVJ5

RVJ22

Full Data Set HAR-RV Coefficients 0.172941459750806 0.0835696683960281 0.0138121594816689 Beta 2.5079e-.05;.17183;.83412;.012887 SE 1.0053e-05;.022303;.0079109,.0017417 t= 2.4947,7.7042;10.544;7.3988 pval=.012662,1.7986e-14;0;1.7897e-13

Conclusion Jumps have occurred in same probability in “Financial Crisis” as in Rest of Data HAR-RV model is able to accurately model during “Financial Crisis” RV is high during “Financial Crisis” but jumps are not occurring at abnormal rate as stated by many in media