A new recursive regression methodology is introduced to analyze the bubble char-
acteristics of various financial time series during the subprime crisis. The meth-
ods modify a technique proposed in Phillips, Wu, and Yu (2011) and provide a
technology for identifying bubble behavior with consistent dating of their origi-
nation and collapse. The tests serve as an early warning diagnostic of bubble ac-
tivity and a new procedure is introduced for testing bubble migration across mar-
kets. Three relevant financial series are investigated, including a financial asset
price (a house price index), a commodity price (the crude oil price), and one bond
price (the spread between Baa and Aaa). Statistically significant bubble character-
istics are found in all of these series. The empirical estimates of the origination
and collapse dates suggest a migration mechanism among the financial variables.
A bubble emerged in the real estate market in February 2002. After the subprime
crisis erupted in 2007, the phenomenon migrated selectively into the commodity
market and the bond market, creating bubbles which subsequently burst at the
end of 2008, just as the effects on the real economy and economic growth became
manifest. Our empirical estimates of the origination and collapse dates and tests
of migration across markets match well with the general dateline of the crisis put
forward in the recent study by Caballero, Farhi, and Gourinchas (2008a).
Keywords. Financial bubbles, crashes, date stamping, explosive behavior, migra-
tion, mildly explosive process, subprime crisis, timeline.
JEL classification. C15, G01, G12.