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Regime switching: Italian financial markets over a century

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Abstract

The frequency of crashes and the magnitude of crises in international financial markets are growing more severe over time. Recent financial crises are not singular events portrayed in recent accounts, rather, they erupt in circumstances that are very similar to the economic and financial environments of the earlier eras. This paper analyzes the Italian stock market in two very peculiar periods (1901–1911 and 1993–2004): the “Second” and the “Third industrial revolution”. We use Markov Switching Models to test whether the Italian stock market volatility has increased in the long run and whether it can be represented by different regimes. We find that volatility regimes exist; that Banking sector has a central role and “New economy” sectors perform quite well while traditional sectors do not, in both periods.

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Authors and Affiliations

  1. Dipartimento di Statistica “G. Parenti”, Università di Firenze, Via G. B. Morgagni, 59-50134, Florence, Italy

    Margherita Velucchi

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  1. Margherita Velucchi
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Correspondence to Margherita Velucchi.

Additional information

I am grateful to comments from Giampiero M. Gallo, Christian T. Brownlees, Marco J. Lombardi, Renato Giannetti and from participants in the 2005 S.Co. Conference in Bressanone, especially the discussant Francesco Lisi. Thanks are also due to two anonymous referees that strongly helped improve the overall structure and readability of the paper.

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Velucchi, M. Regime switching: Italian financial markets over a century. Stat Methods Appl 18, 67–86 (2009). https://doi.org/10.1007/s10260-007-0075-3

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