Abstract

Financial series, particularly stock exchange indices, often fluctuate immensely during financial crises. This phenomenon indicates regime changes or structural breaks that cannot be represented by simple linear models or time series.

In this study we will use first-order autoregressive Markov switching models in the (MS (2)-AR(1)) to test the hypothesis that international financial crises occur in advanced economies at regular intervals. We have therefore chosen the main stock exchange indices of ten developed OECD countries during the period January 1985-May 2013. Our results allow us, first, to show that there is a strong relation between stock market bear regimes and periods of financial crisis, and second, to validate the hypothesis of recurring periodicity of international financial crises in financial markets, given that these crises happen at regular time intervals: namely, every decade.

 

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