Macroeconomic Phase Transitions Detected from the Dow Jones Industrial Average Time Series
| dc.creator | Cheng, Wong Jian | |
| dc.creator | Heng, Lian | |
| dc.creator | Ann, Cheong Siew | |
| dc.date | 2009-04-20 | |
| dc.date.accessioned | 2026-07-07T13:05:56Z | |
| dc.date.available | 2026-07-07T13:05:56Z | |
| dc.description | 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 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 the mid-1998 transition, and an unnamed May 2006 market event related to corrections in the Chinese markets to be the trigger for the mid-2007 transition. | |
| dc.description | elsarticle, 18 pages, 3 figures, 1 table | |
| dc.identifier | https://arxiv.org/abs/0904.3004 | |
| dc.identifier | http://arxiv.org/abs/0904.3004 | |
| dc.identifier.uri | http://salesiana.dossiersoluciones.com/handle/123456789/227653 | |
| dc.subject | General Finance | |
| dc.subject | Statistical Finance | |
| dc.title | Macroeconomic Phase Transitions Detected from the Dow Jones Industrial Average Time Series | |
| dc.type | text |