Dating the timeline of financial bubbles during the subprime crisis equestrian horse equine dating
When high-risk mortgage borrowers could not make loan payments, they either sold their homes at a gain and paid off their mortgages, or borrowed more against higher market prices.
Because such periods of rising home prices and expanded mortgage availability were relatively unprecedented, and new mortgage products’ longer-run sustainability was untested, the riskiness of PMBS may not have been well-understood.
In April 2007, New Century Financial Corp., a leading subprime mortgage lender, filed for bankruptcy.
Shortly thereafter, large numbers of PMBS and PMBS-backed securities were downgraded to high risk, and several subprime lenders closed.
A real-time version of the strategy is provided that is suited for practical implementation.
Simulations explore the finite sample performance of the strategy for dating market recovery.
This paper first strengthens the theoretical foundation of the real time bubble monitoring strategy proposed in Phillips, Shi and Yu (2015a,b, PSY) by developing analytics and studying the performance characteristics of the testing algorithm under alternative forms of bubble implosion which capture various return paths to market normalcy.
In that era, homeownership fluctuated around 65 percent, mortgage foreclosure rates were low, and home construction and house prices mainly reflected swings in mortgage interest rates and income.
In the early and mid-2000s, high-risk mortgages became available from lenders who funded mortgages by repackaging them into pools that were sold to investors.
Expansion and collapse are two key features of a financial asset bubble.
Bubble expansion may be modeled using a mildly explosive process.