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Identifying The Bottom Line After A Stock Market Crash

Author

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  • B. M. ROEHNER

    (LPTHE, University Paris 7, 2 place Jussieu, 75005 Paris, France)

Abstract

In this empirical paper we show that in the months following a crash there is a distinct connection between the fall of stock prices and the increase in the range of interest rates for a sample of bonds. This variable, which is often referred to as the interest rate spread variable, can be considered as a statistical measure for the disparity in lenders' opinions about the future; in other words, it provides an operational definition of the uncertainty faced by economic agents. The observation that there is a strong negative correlation between stock prices and the spread variable relies on the examination of eight major crashes in the United States between 1857 and 1987. That relationship which has remained valid for one and a half century in spite of important changes in the organization of financial markets can be of interest in the perspective of Monte Carlo simulations of stock markets.

Suggested Citation

  • B. M. Roehner, 2000. "Identifying The Bottom Line After A Stock Market Crash," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 91-100.
    • Handle: RePEc:wsi:ijmpcx:v:11:y:2000:i:01:n:s0129183100000092
    DOI: 10.1142/S0129183100000092
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    Citations

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    Cited by:

    1. Maslov, Sergei & Roehner, Bertrand M, 2004. "The conundrum of stock versus bond prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 335(1), pages 164-182.
    2. Zhou, Wei-Xing & Sornette, Didier, 2004. "Causal slaving of the US treasury bond yield antibubble by the stock market antibubble of August 2000," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 337(3), pages 586-608.
    3. Zhou, Wei-Xing & Sornette, Didier, 2005. "Testing the stability of the 2000 US stock market “antibubble”," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 348(C), pages 428-452.
    4. Cajueiro, Daniel O. & Tabak, Benjamin M. & Werneck, Filipe K., 2009. "Can we predict crashes? The case of the Brazilian stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(8), pages 1603-1609.
    5. B. M. Roehner, 2000. "Determining bottom price-levels after a speculative peak," Papers cond-mat/0009222, arXiv.org.

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