Author: Rad Fariba
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Reviewing the history of financial bubbles indicates that there is no unique definition of the financial bubbles. Given the importance of understanding financial bubbles, the focus of this research is to define and detect bubbles in financial markets. The identification of bubbles is conducted by using stock prices from the internet bubble in the late 1990s. This study defines a bubble based on if the current stock price increases by more than 100% and then decreases by at least 50%. Bubbles were found in 30 of the 40 internet companies studied. The first approach using mostly 10 and 40 day moving averages indicated that most bubbles occurred in less than 150 days from beginning to end. The second approach was to measure the size of the bubble and results showed that most of the bubbles were smaller in size. For the third approach, measuring asymmetry of bubbles, results showed that stocks fall faster than they rise. These insights may be valuable to assist investors and policymakers with their decision making.
Author: Austin F. Murphy
Publisher:
ISBN:
Category : Econometrics
Languages : en
Pages : 92
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Book Description
To this day, economists argue about the existence of stock market bubbles. The literature review for this paper observes the analysis of four reputable bubble tests in an attempt to provide ample qualitative proof for the existence of bubbles. The first obstacle for creating an effective bubble detection test is the difficulty of estimating true fundamental values for equities. Without adequate estimations for the fundamental values of equities, the deviation between actual price and fundamental price is impossible to observe or estimate. Additionally, these tests are reliant on strong underlying assumptions, which tend to cloud results. This thesis applies a price-to-earnings ratio test adapted from a thesis written by Bram Weites and Malte von Maravic (2010). The model utilizes a relationship between the risk and price-to-earnings ratios of equities to econometrically test for bubbles. The test has an advantage over previous bubble literature because it does not require the estimation of the fundamental values of equities. A rolling regression is applied to the econometric model, and four bubbles are detected. The Dot-com bubble is detected with complete confidence, and three other bubbles are detected with slightly less confidence.
Author: Harold L. Vogel
Publisher:
ISBN: 9781306858007
Category :
Languages : en
Pages : 386
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Book Description
Despite the thousands of articles and the millions of times that the word 'bubble' has been used in the business press, there still does not appear to be a cohesive theory or persuasive empirical approach with which to study 'bubble' and 'crash' conditions. This book presents a plausible and accessible descriptive theory and empirical approach to the analysis of such financial market conditions. It advances such a framework through application of standard econometric methods to its central idea, which is that financial bubbles reflect urgent short side rationed demand. From this basic idea, an elasticity of variance concept is developed. It is further shown that a behavioral risk premium can probably be measured and related to the standard equity risk premium models in a way that is consistent with conventional theory.
Author: Azar Karimov
Publisher: Springer
ISBN: 3319650092
Category : Business & Economics
Languages : en
Pages : 143
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Book Description
This book introduces readers to a new approach to identifying stock market bubbles by using the illiquidity premium, a parameter derived by employing conic finance theory. Further, it shows how to develop the closed form formulas of the bid and ask prices of European options by using Black-Scholes and Kou models. By using the derived formulas and sliding windows technique, the book explains how to numerically calculate illiquidity premiums. The methods introduced here will enable readers interested in risk management, portfolio optimization and hedging in real-time to identify when asset prices are in a bubble state and when that bubble bursts. Moreover, the techniques discussed will allow them to accurately recognize periods of exuberance and panic, and to measure how different strategies work during these phases with respect to calmer periods of market behavior. A brief history of financial bubbles and an outlook on future developments serve to round out the coverage.
Author: Bradley Jones
Publisher: International Monetary Fund
ISBN: 1484398270
Category : Business & Economics
Languages : en
Pages : 49
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Book Description
In the aftermath of the global financial crisis, the issue of how best to identify speculative asset bubbles (in real-time) remains in flux. This owes to the difficulty of disentangling irrational investor exuberance from the rational response to lower risk based on price behavior alone. In response, I introduce a two-pillar (price and quantity) approach for financial market surveillance. The intuition is straightforward: while asset pricing models comprise a valuable component of the surveillance toolkit, risk taking behavior, and financial vulnerabilities more generally, can also be reflected in subtler, non-price terms. The framework appears to capture stylized facts of asset booms and busts—some of the largest in history have been associated with below average risk premia (captured by the ‘pricing pillar’) and unusually elevated patterns of issuance, trading volumes, fund flows, and survey-based return projections (reflected in the ‘quantities pillar’). Based on a comparison to past boom-bust episodes, the approach is signaling mounting vulnerabilities in risky U.S. credit markets. Policy makers and regulators should be attune to any further deterioration in issuance quality, and where possible, take steps to ensure the post-crisis financial infrastructure is braced to accommodate a re-pricing in credit risk.
Author: Kevin A. Hassett
Publisher: Random House Digital, Inc.
ISBN: 9780609609293
Category : Business & Economics
Languages : en
Pages : 0
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Book Description
There are only two types of stocks: those safe from bubbles and those that are not. This is a fact of investing many discovered as they saw their fabulous gains whittled away by the extreme calamity of the Internet sector. But what about the future? Is there a way for investors to capture the enormous potential for profit that exists at the frontier of the economy, the place where innovation and genius operate, without placing their fortunes in jeopardy? Is there a way to evaluate price increases--and declines--and identify whether they are happening for good or bad reasons? Bubbleology makes it possible to separate the winners from the losers. It is a brilliant, practical, and original analysis of the stock market that bashes the conventional wisdom about bubbles, showing that such famous examples as Tulipomania were not, in fact, bubbles at all. Bubbleology shows that the traditional way of evaluating risk--equating it with volatility--is inherently flawed and incomplete. If a stock fluctuates a lot in price it is regarded as risky. If the price is stable, then it is not. What this simplistic way of thinking leaves out is the simple fact that companies trying something completely new that may fundamentally alter the economic landscape are operating at the frontier. The stock of such a company swims in a sea of ambiguity, its circumstances uncertain, since there is little to provide guidance about the future. But when nobody knows for sure what will happen, pundits tell us again about Tulipomania, the South Seas Bubble, and now the debacle of the Internet to scare investors away from potentially enormous profits. To realize those profits, however, investors have tounderstand the role that uncertainty and ambiguity--the absence of reliable information about future events--play in the modern stock market. Those who equate ambiguity with bubbles will miss the great opportunities of the future. Bubbleology provides a new way to observe what is really going on in the market, enabling you to understand whether a stock or a sector is suspicious--whether it is in a bubble and therefore something to be avoided. Finding bubbles requires knowing where to look and what to look for. Bubbleology will help you avoid both streaming into speculative manias and shying away from perfectly good business opportunities. It tells you why you need to avoid both pontificating pundits and overconfident stock analysts. With this unique and forward-thinking book, you can inspect suspicious stocks, accurately discern risk, and diagnose a blossoming bubble before it vanishes along with your money.
Author: Stefan Palan
Publisher:
ISBN: 9783642021480
Category : Capital market
Languages : en
Pages : 188
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Book Description
This book describes a laboratory experiment designed to test the causes and properties of bubbles in financial markets and explores the question whether it is possible to design markets which avoid such bubbles and crashes. In the experiment, subjects were given the opportunity to trade in a stock market modeled after the seminal work of Smith et al. (1988). To account for the increasing importance of online betting sites, subjects were also allowed to trade in a digital option market. The outcomes shed new light on how subjects form and update their expectations, placing special emphasis on the bounded rationality of investors. Various analytical bubble measures found in the literature are collected, calculated, classified and presented for the first time. The very interesting new bubble measures "Dispersion Ratio", "Overpriced Transactions" and "Underpriced Transactions" are developed, making the book an important step towards the research goal of preventing bubbles and crashes in financial markets. In addition, the book formulates concrete new research hypotheses for future studies.
Author: György Komáromi
Publisher: ICFAI Books
ISBN: 8131404080
Category : Business enterprises
Languages : en
Pages : 129
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Book Description
This book presents one of the most controversial happenings in economics stock market bubbles. The author discusses this topic threadbare and provides a critical analysis of related literature from different economic schools. This book also presents analy
Author: William Quinn
Publisher: Cambridge University Press
ISBN: 1108369359
Category : Business & Economics
Languages : en
Pages : 297
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Book Description
Why do stock and housing markets sometimes experience amazing booms followed by massive busts and why is this happening more and more frequently? In order to answer these questions, William Quinn and John D. Turner take us on a riveting ride through the history of financial bubbles, visiting, among other places, Paris and London in 1720, Latin America in the 1820s, Melbourne in the 1880s, New York in the 1920s, Tokyo in the 1980s, Silicon Valley in the 1990s and Shanghai in the 2000s. As they do so, they help us understand why bubbles happen, and why some have catastrophic economic, social and political consequences whilst others have actually benefited society. They reveal that bubbles start when investors and speculators react to new technology or political initiatives, showing that our ability to predict future bubbles will ultimately come down to being able to predict these sparks.
Author: Magda Roszczynska-Kurasinska
Publisher:
ISBN:
Category :
Languages : en
Pages : 7
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Book Description
Proving the existence of speculative financial bubbles even a posteriori has proven exceedingly difficult[1-3] so anticipating a speculative bubble ex ante would at first seem an impossible task. Still as illustrated by the recent turmoil in financial markets initiated by the so called quot;subprime crisisquot; there is clearly an urgent need for new tools in our understanding and handling of financial speculative bubbles. In contrast to periods of fast growth, the nature of market dynamics profoundly changes during speculative bubbles where self contained strategies often leads to unconditional buying. A critical question is therefore whether such a signature can be quantified, and if so, used in the understanding of what are the sufficient and necessary conditions in the creation of a speculative bubble.Here we show a new technique, based on agent based simulations, gives a robust measure of detachment of trading choices created by feedback, and predicts the onset of speculative bubbles in experiments with human subjects. We use trading data obtained from experiments with humans as input to computer simulations of artificial agents that use adaptive strategies defined from game theory. As the agents try to maximize their profit using the market data created by humans, we observe certain moments of decoupling where the decision of an agent becomes independent of the next outcome of the human experiment, leading to pockets of deterministic price actions of the agents. Decoupling in the agent based simulations in turn allows us to correctly predict at what time tlt;subgt;blt;/subgt; the subjects in the laboratory experiments have entered a bubble state. Finally in one case where the subjects do not enter a permanent bubble state, our method allow us at certain special moments to predict with a 87% success rate an unit move of the market two time steps ahead.
