IDEAS home Printed from https://ideas.repec.org/a/taf/quantf/v9y2009i3p259-278.html
   My bibliography  Save this article

Evidence for state transition and altered serial codependence in US$ interest rates

Author

Listed:
  • Riccardo Rebonato
  • Jian Chen

Abstract

This paper studies the codependence among, and drawdown and drawup properties of, US$ interest rates. The problem is attacked from the angle of regime switching. Different regimes are identified using the Hidden Markov Models (HMMs). The statistical properties in each state are examined separately and reconciled to form a coherent picture. We found that high fractions of reversals exist in the normal state and that consecutive bursts exist in the excited state. In large drawdowns and drawups (draws), long draws tend to be 'democratic', short draws tend to be 'oligarchic' and medium-size draws stay in either 'democratic' or 'oligarchic' mode, while conditionally independent draws are rarely found. We also investigated the distributions of draws. We found that HMMs recover the draw properties well and that the overall distribution of draws is an informationally-rich indicator about the correlation regime(s) in the various Markov states.

Suggested Citation

  • Riccardo Rebonato & Jian Chen, 2009. "Evidence for state transition and altered serial codependence in US$ interest rates," Quantitative Finance, Taylor & Francis Journals, vol. 9(3), pages 259-278.
    • Handle: RePEc:taf:quantf:v:9:y:2009:i:3:p:259-278
    DOI: 10.1080/14697680802454692
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/14697680802454692
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/14697680802454692?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Riccardo Rebonato & Valerio Gaspari, 2006. "Analysis of drawdowns and drawups in the US$ interest-rate market," Quantitative Finance, Taylor & Francis Journals, vol. 6(4), pages 297-326.
    2. Anders Johansen, 2004. "Origin of Crashes in 3 US stock markets: Shocks and Bubbles," Papers cond-mat/0401210, arXiv.org.
    3. Johansen, Anders, 2004. "Origin of crashes in three US stock markets: shocks and bubbles," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 338(1), pages 135-142.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stephan Schwill, 2018. "Entropy Analysis of Financial Time Series," Papers 1807.09423, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Vygodina, Anna V. & Zorn, Thomas S. & DeFusco, Richard, 2008. "Asymmetry in the effects of economic fundamentals on rising and falling exchange rates," International Review of Financial Analysis, Elsevier, vol. 17(4), pages 728-746, September.
    2. Cajueiro, Daniel O. & Tabak, Benjamin M. & Werneck, Filipe K., 2009. "Can we predict crashes? The case of the Brazilian stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(8), pages 1603-1609.
    3. Panagiotis Papaioannnou & Lucia Russo & George Papaioannou & Constantinos Siettos, 2013. "Can social microblogging be used to forecast intraday exchange rates?," Papers 1310.5306, arXiv.org.
    4. L. Lin & Ren R. E & D. Sornette, 2009. "A Consistent Model of `Explosive' Financial Bubbles With Mean-Reversing Residuals," Papers 0905.0128, arXiv.org.
    5. L. Lin & Ren R.E. & D. Sornette, "undated". "A Consistent Model of `Explosive' Financial Bubbles With Mean-Reversing Residuals," Working Papers CCSS-09-002, ETH Zurich, Chair of Systems Design.
    6. George Chang & James Feigenbaum, 2006. "A Bayesian analysis of log-periodic precursors to financial crashes," Quantitative Finance, Taylor & Francis Journals, vol. 6(1), pages 15-36.
    7. Rotundo, Giulia & Navarra, Mauro, 2007. "On the maximum drawdown during speculative bubbles," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 235-246.
    8. Riccardo Rebonato & Valerio Gaspari, 2006. "Analysis of drawdowns and drawups in the US$ interest-rate market," Quantitative Finance, Taylor & Francis Journals, vol. 6(4), pages 297-326.
    9. Lin, L. & Ren, R.E. & Sornette, D., 2014. "The volatility-confined LPPL model: A consistent model of ‘explosive’ financial bubbles with mean-reverting residuals," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 210-225.
    10. Zhou, Wei & Huang, Yang & Chen, Jin, 2018. "The bubble and anti-bubble risk resistance analysis on the metal futures in China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 503(C), pages 947-957.
    11. Sanjay Rajagopal & Patrick Hays, 2012. "Return Persistence in the Indian Real Estate Market," International Real Estate Review, Global Social Science Institute, vol. 15(3), pages 283-305.
    12. Panagiotis Papaioannou & Lucia Russo & George Papaioannou & Constantinos Siettos, 2013. "Can social microblogging be used to forecast intraday exchange rates?," Netnomics, Springer, vol. 14(1), pages 47-68, November.
    13. Hongzhong Zhang, 2018. "Stochastic Drawdowns," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 10078, August.
    14. Zhang, Hongzhong & Leung, Tim & Hadjiliadis, Olympia, 2013. "Stochastic modeling and fair valuation of drawdown insurance," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 840-850.
    15. John M. Fry, 2009. "Statistical modelling of financial crashes: Rapid growth, illusion of certainty and contagion," EERI Research Paper Series EERI_RP_2009_10, Economics and Econometrics Research Institute (EERI), Brussels.
    16. Mendes, Beatriz Vaz de Melo & Lavrado, Rafael Coelho, 2017. "Implementing and testing the Maximum Drawdown at Risk," Finance Research Letters, Elsevier, vol. 22(C), pages 95-100.
    17. Chong, You Quan & Wang, Bin & Yue Tan, Gladys Li & Cheong, Siew Ann, 2014. "Diversified firms on dynamical supply chain cope with financial crisis better," International Journal of Production Economics, Elsevier, vol. 150(C), pages 239-245.
    18. Fei Ren & Li-Xin Zhong, 2011. "Price impact asymmetry of institutional trading in Chinese stock market," Papers 1110.3133, arXiv.org.
    19. Fry, J. M., 2010. "Gaussian and non-Gaussian models for financial bubbles via econophysics," MPRA Paper 27307, University Library of Munich, Germany.
    20. Ren, Fei & Zhong, Li-Xin, 2012. "The price impact asymmetry of institutional trading in the Chinese stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(8), pages 2667-2677.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:9:y:2009:i:3:p:259-278. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RQUF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.