The Empirical Research On KLR Financial Crisis Early Warning Model

The frequent-happening financial crisis caused dramatic harm to the world economy. The U.S. subprime crisis, started in 2007 has caused unprecedented losses. Many countries began to research on the subject of effectively preventing financial crises and minimizing the negative impact of the crisis. This paper compares the ma-jor early financial crisis warning model. Generally, KLR model is the better than other mainstream financial crisis early warning models. Can KLR model successfully pre-dict the 2007 subprime crisis? This paper tests the KLR model in sample and out of sample, in order to have the comprehensive assessment of its early warning effective-ness. We define the United States and other mature industrial countries the years of 1975-2001 as in-sample interval, the years of 2002-2009 as out-of-sample interval. The in-sample data test showed that KLR model has a good early warning capability; the out-of-sample data test showed that some early warning indicators issued clear warning signals before the outbreak of the subprime crisis. Of course, due to avail-ability of date and limitations of research methods, the reliability of conclusions needs further testing. In addition, we find that there are deficiencies in the KLR model index system. It may be improved by constructing a set of finial risk early warning indicator system based on current economic situation and the existing materials research mate-rials. The results showed that the improved has a good warning effect in analyzing the possibility of china recent financial risk.