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Role Of Early Warning Systems In Predicting The Stock Price Crisis: What We Learnt From Grasshopper And Ants Fable

Author

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  • HABIBI, Reza

    (Iran Banking Institute, Central Bank of Iran.)

Abstract

Early warning systems are too important tools in predicting the crisis in financial institutions say banks and stock markets. A consequence of crashes in a specified stock or stock market is financial crisis. This paper considers designing an early warning system based on random walk theory and maximal inequality. First, mathematical tools are presented, and the early warning system is designed, then some real data sets are analysed. The performance of system is evaluated by some different criteria. After it, using a dynamic programming approach, a modified version of mentioned early warning system is proposed. Finally, a conclusion section is given.

Suggested Citation

  • HABIBI, Reza, 2021. "Role Of Early Warning Systems In Predicting The Stock Price Crisis: What We Learnt From Grasshopper And Ants Fable," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 25(2), pages 6-20, June.
    • Handle: RePEc:vls:finstu:v:25:y:2021:i:2:p:6-20
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    References listed on IDEAS

    as
    1. Rupa Duttagupta & Mr. Paul Cashin, 2008. "The Anatomy of Banking Crises," IMF Working Papers 2008/093, International Monetary Fund.
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    3. Ivashina, Victoria & Scharfstein, David, 2010. "Bank lending during the financial crisis of 2008," Journal of Financial Economics, Elsevier, vol. 97(3), pages 319-338, September.
    4. Männasoo, Kadri & Mayes, David G., 2009. "Explaining bank distress in Eastern European transition economies," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 244-253, February.
    5. Bjork, Tomas, 2009. "Arbitrage Theory in Continuous Time," OUP Catalogue, Oxford University Press, edition 3, number 9780199574742.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Crash indicator; Dynamic programming; Early warning system; Stock market; Variance ratio;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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