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Macroeconomic Phase Transitions Detected from the Dow Jones Industrial Average Time Series by Cheng, Wong Jian; Heng, Lian; Ann, Cheong Siew is a scholarly article available to read on EtoBox.

What is Macroeconomic Phase Transitions Detected from the Dow Jones Industrial Average Time Series about?

In this paper, we perform statistical segmentation and clustering analysis of the Dow Jones Industrial Average 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 to seven clusters, each representing a different macroeconomic phase. The macroeconomic phases are distinguished primarily by their volatilities. We find 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, but extremely-high-volatility market crashes are found mostly within the high-volatility phase. From the temporal distribution of various phases, we see a high-volatility 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

Author

Cheng, Wong Jian; Heng, Lian; Ann, Cheong Siew

Published

2009

Language

EN