On the Assessment of Financial Crises in the US Equity Market (with Rachid Bokreta)

IEMP Financial crisesThis paper focuses on the development of the Index of Equity Market Pressure (IEMP) to characterize and to assess market turbulences.

In a first issue, we contribute to financial crises literature by proposing a new dynamic risk measure built from a factorial model mobilizing a robust and a dynamic estimation method respectively known as Iteratively Reweighted Least Squares and Kalman Filter. The first one helps us to select the significant risk factors by underweighting time series outliers whereas the second one allows us to measure time-varying betas more efficiently and to reconstruct a conditional stock return trajectory. The final result gives us an asymmetric financial measure which assesses the intensity of negative rough returns.

Based on monthly US market data from 1994 to 2009 period, we seek to compute objective and robust measures able to identify and characterize non-extreme and extreme event periods on stock index market.

Keywords: Financial Crises, Multifactorial Model, Iteratively Reweighted Least Squares, Kalman Filter, Probability Distribution, Richter Scale.

Assessment of financial crises
Password : crises

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