• Open Access

Dating the timeline of financial bubbles during the subprime crisis


  • Peter C. B. Phillips,

    1. Yale University, University of Auckland, University of Southampton, and Singapore Management University; peter.phillips@yale.edu
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  • Jun Yu

    1. Singapore Management University; yujun@smu.edu.sg
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    • Phillips acknowledges support from the NSF under Grants SES 06-47086 and SES 09-56687. Yu acknowledges support from the Singapore Ministry of Education AcRF Tier 2 fund under Grant T206B4301-RS. We wish to thank a co-editor, three anonymous referees, seminar participants in many universities, the 2010 International Symposium on Econometric Theory and Applications held at Singapore Management University, the World Congress of the Econometric Society in Shanghai, the second Singapore Conference on Quantitative Finance at Saw Centre for Quantitative Finance, the Workshop on Econometric and Financial Studies After Crisis at Academia Sinica, the 2011 Shanghai Econometrics Workshop, and the Frontiers in Financial Econometrics Workshop for helpful comments.


A new recursive regression methodology is introduced to analyze the bubble characteristics of various financial time series during the subprime crisis. The methods modify a technique proposed in Phillips, Wu, and Yu (2011) and provide a technology for identifying bubble behavior with consistent dating of their origination and collapse. The tests serve as an early warning diagnostic of bubble activity and a new procedure is introduced for testing bubble migration across markets. Three relevant financial series are investigated, including a financial asset price (a house price index), a commodity price (the crude oil price), and one bond price (the spread between Baa and Aaa). Statistically significant bubble characteristics are found in all of these series. The empirical estimates of the origination and collapse dates suggest a migration mechanism among the financial variables. A bubble emerged in the real estate market in February 2002. After the subprime crisis erupted in 2007, the phenomenon migrated selectively into the commodity market and the bond market, creating bubbles which subsequently burst at the end of 2008, just as the effects on the real economy and economic growth became manifest. Our empirical estimates of the origination and collapse dates and tests of migration across markets match well with the general dateline of the crisis put forward in the recent study by Caballero, Farhi, and Gourinchas (2008a).