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Detecting macroeconomic phases in the Dow Jones Industrial Average time series
| Content Provider | Semantic Scholar |
|---|---|
| Author | Cheng, Jian Cheong, H. K. Wong, Jian Cheng Lian, Heng Cheong, Siew Ann |
| Copyright Year | 2018 |
| Abstract | In this paper, we perform statistical segmentation and clustering analysis of the Dow Jones Industrial Average (DJI) time series between January 1997 and August 2008. Modeling the index movements and log-index movements as stationary Gaussian processes, we find a total of 116 and 119 statistically stationary segments respectively. These can then be grouped into between five and seven clusters, each representing a different macroeconomic phase. The macroeconomic phases are distinguished primarily by their volatilities. We find that the US economy, as measured by the DJI, spends most of its time in a low-volatility phase and a high-volatility phase. The former can be roughly associated with economic expansion, while the latter contains the economic contraction phase in the standard economic cycle. Both phases are interrupted by a moderate-volatility market correction phase, but extremely-high-volatility market crashes are found mostly within the high-volatility phase. From the temporal distribution of various phases, we see a highvolatility phase from mid-1998 to mid-2003, and another starting mid-2007 (the current global financial crisis). Transitions from the low-volatility phase to the high-volatility phase are preceded by a series of precursor shocks,whereas the transition from the high-volatility phase to the low-volatility phase is preceded by a series of inverted shocks. The time scale for both types of transitions is about a year. We also identify the July 1997 Asian Financial Crisis to be the trigger for themid-1998 transition, and anunnamedMay2006market event related to corrections in the Chinesemarkets to be the trigger for themid-2007 transition. © 2009 Elsevier B.V. All rights reserved. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://dr.ntu.edu.sg/bitstream/handle/10220/6107/Wong2009PhysicaA388p4635.pdf?isAllowed=y&sequence=1 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
