The Asymmetric Mean Reversion And The Formation Mechanism Of Financial Crisis

With the development of economy, the role which financial markets play in a country’s economic development is more and more important, the financial market has become the core of modern economy development. As a kind of abnormal condition in financial markets, financial crisis can disrupt the normal operation of the financial market, put an end to the prosperity and development of the economy,change the state of a country’s economic development. To ensure the continuous,healthy and stable development of economy, it is necessary to study the cause of the financial crisis, and on this basis to take effective measures to avoid the outbreak of the financial crisis, or after the crisis to reduce the possible harm as much as possible.The basic function of financial market is to collocate social capital, makes the flow of funds between supply and demand is more rational. With the development of economy, investors prefer to raise the required funds in direct financing way to satisfied the market demand, securities market as the main place of direct financing,while satisified the growing direct financing needs of the society, also accumulated a lot of risk, stock market price volatility is growing badly, the influence of stock price volatility has gradually become the main factor that cause the financial crisis. The stock market as an important component of the security market and any market volatility can spill out through the stock market quickly. Thus this article choose stock prices as a specific research object, from the perspective of the stock price fluctuations, to analyze the formation mechanism of financial crisis.The change of stock price has obvious characteristics of mean reversion, thestock price deviation from the mean will eventually converge to the mean again,even if the market is in the financial crisis. This article is grasping the change of stock price is always show the mean reversion characteristic, within the framework of mean reversion theory to analyze the formation of the financial crisis. Stock price mean reversion process can be divided into two stages: one is the phase the stock price deviate from the mean, the other is the phase the deviated price converge to the mean. Similarly, the financial crisis also can be divided into two stages: one is the market has the possibility of financial crisis stage, the other is that this possibility into reality.The stock prices will overvalued which there is excess liquidity in the market and market participants to pursue higher yields of investment behavior, then the market will have the possibility of a crisis. And when the seriously overvalued stock prices converge to its mean quickly in a short time, the possibility will be into reality.When face to possible loss, investors will overact under the impact form the negative information, the stock price also can present a significant asymmetric mean reversion characteristic, the asymmetric characteristics make the stock price will converge to its mean in a seriously fast speed. The asymmetric characteristics of mean reversion plays a vital role in the process which possibility of financial crisis be into reality.To more meticulously analyze the formation mechanism of financial crisis, to verify the effect which asymmetric characteristics of mean reversion will play in the process of the financial crisis, the financial crisis is no longer seen as an integral whole, the subsequent analysis are based on phase division. In order to solve the defects brought by the traditional event analysis method, this paper choose the adjusted CPM model to divide the 7 financial crisis since the 1980 s into different stages, which rely on the changes of the distribution of stock price. Every financial crisis contains the stage which stock prices continue to rise, which prices fell sharplyin a short time and which prices fluctuate badly.On the basis of divide phase, this paper choose the ANST-GARCH model to analyze mean reversion characteristic of stock price during the period of the financial crisis, and the empirical results show that the phase in prices tumbled in a short time, it can be detected the significant asymmetric characteristics of mean reversion which is overacted to the impact of negative information, while in the other phase it can be only verifed the significant mean reversion phenomena, but cannot be tested the significant asymmetry. Then, choose the TAR and MTAR model to carry on the empirical analysis for path which the deviated prices converge to its mean. Results show that the degree of deviation from the mean is directly related to the speed of convergence, but whatever the stock price is overvalued or undervalued,won’t make the path show the characteristics of asymmetric, and in certain stages of the financial crisis is tested that the impact from different direction of information will make the path show the characteristics of asymmetric. In the stage of the financial crisis erupt the stock price will converge to its mean in more shock way,while in other stage it will in more gentle way. During the stage stock prices fell sharply the cycle of mean reversion is averagely the shortest.Excess market liquidity and behavior market participant pursuit the excess return will gradually overvalue stock prices, and make the market has the possibility of financial crisis. When faced with a possible loss the investor will overreact to negative information, then determines the stock price will converge to its mean in a fast speed, then the possibility will be into reality. Asymmetric mean reversion characteristics of stock price has become the key factors that induce the outbreak of the financial crisis. The theoretical and empirical analysis about formation mechanism of financial crisis have pointed out the direction of a more effective response to the financial crisis: should do a good job in prevention, try to solve the financial crisis in the embryonic stage; should also do a good job in regulation afterthe crisis, once financial crisis erupted it also can reduce the harm to the economic crisis.In this paper, the specific chapters are arranged as following:Chapter 1 Introduction. To state the reason and meaning why analyze the formation mechanism of financial crisis from the perspective of stock price fluctuation in the current background. And according to the content of this paper to arrange the specific chapters.Chapter 2 The review of financial crisis theory and research. This chapter reviews the relevant theories of financial crisis after the depression in terms of time,which can be found the development of the relevant theory of the financial crisis is closely related with the characteristics of financial market development in different stages of the. Later briefly review the recent research of the financial crisis from scholars both at home and abroad.Chapter 3 The stage characteristics of major financial crisis. Using the adjusted CPM model to identify the change point in the 7 world famous financial crisis since the 80 s of 20, the sample period is divided into several different stages. And in each stage carry on a preliminary quantitative analysis about stock index.Chapter 4 The theoretical analysis about relation between asymmetric mean reversion and the financial crisis. This chapter firstly briefly summary the lated research about mean reversion of stock price, and do further research about the mean reversion theory. Then do the theoretical analysis about the formation of the financial crisis within the framework of mean reversion theory. Stock prices are overvalued make the market has the possibility of financial crisis, but the possibility does not mean that the financial crisis will be erupted eventually, only when the overvalued stock prices converge to its mean quickly in a short time the possibility will be into reality. The ordinary process of mean reversion will evolute to the financial crisis, the asymmetric mean reversion characteristics of stock price plays acrucial role.Chapter 5 The empirical analysis about relation between asymmetric mean reversion and of the financial crisis. This chapter using ANST- GARCH model to analyze the characteristics of stock price index in various stages during financial crisis, the empirical results show that in the stage which stock price index fell sharply, it can be tested the significant characteristics of asymmetric mean reversion,at the stock price could be overreacted to impact of negative information; And in the other stages during sample period, it can be only tested the significant characteristics of mean reversion.Chapter 6 Asymmetric path of mean reversion during the financial crisis. This chapter using the TAR and MTAR model to carriy on the empirical analysis about the path of mean reversion during the financial crisis. In some stage of the financial crisis, the path of stock price mean reversion could be tested asymmetric reactions to information impact from different direction; In the stage which stock price fell sharply, the speed of mean reversion will be more quick, and it is more in shock ways.Chapter 7 The supervision and regulation of the financial crisis behavior research. On the basis of theoretical and empirical analysis about relation betweent the asymmetric mean reversion and the formation of the financial crisis, research on how to more effectively prevent the outbreak of the financial crisis and how to more effectively alleviate the impact of the financial crisis on the economy, and then put some concrete suggestions.