Detection of Crashes and Rebounds in Major Equity Markets

New paper:

Detection of Crashes and Rebounds in Major Equity Markets

Financial markets are well known for their dramatic dynamics and consequences that affect much of the worlds population. Consequently, much research has aimed at understanding, identifying and forecasting crashes and rebounds in financial markets. The Johansen-Ledoit-Sornette JLS model provides an operational framework to understand and diagnose financial bubbles from rational expectations and was recently extended to negative bubbles and rebounds. Using the JLS model, we develop an alarm index based on an advanced pattern recognition method with the aim of detecting bubbles and performing forecasts of market crashes and rebounds. Testing our methodology on 10 major global equity markets, we show quantitatively that our developed alarm performs much better than chance in forecasting market crashes and rebounds. We use the derived signal to develop elementary trading strategies that produce statistically better performances than a simple buy and hold strategy.

via [1108.0077] Detection of Crashes and Rebounds in Major Equity Markets.

Related posts:

  1. Global Debt to Equity Ratio: 2005-2010
  2. Oaktree and the Trouble with Major Market Bottoms
  3. Is Equity a Cult, and Is That Ending?
  4. So Much For Early Crisis Detection
  5. Honey, I Shrunk the Equity Supply

Comments

  1. @vv111y says:

    Are they going to have a website up so we can see how well this works?