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On the hysteresis of financial crises in the US: Evidence from S&P 500

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  • Bentes, Sónia R.

Abstract

This paper examines the financial crisis durations in the US. Based on S&P 500 returns we investigate whether these crises exhibit long-memory or are merely transitional. To this end, we rely on continuous survival time models to gauge the hazard of ending a spell of contiguous return declines and test several specifications under the proportional hazards and the accelerated failure time assumptions. Our findings suggest that the log-normal accelerated failure time is the best model to describe the data, thus yielding a non-monotonic hazard that increases up to a maximum and, then decreases. We also found that spell lengths increase during recessions, when interest rates and prices are more volatile. Our main conclusion is that short spells of negative returns are mainly frictional, while long spells turn into structural crises that may trigger hysteresis.

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  • Bentes, Sónia R., 2021. "On the hysteresis of financial crises in the US: Evidence from S&P 500," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 565(C).
    • Handle: RePEc:eee:phsmap:v:565:y:2021:i:c:s0378437120308815
    DOI: 10.1016/j.physa.2020.125583
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    3. Wang, Jianxin, 2022. "Market distraction and near-zero daily volatility persistence," International Review of Financial Analysis, Elsevier, vol. 80(C).

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