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A Stopping Rule Model for Exiting Bubble-like Markets with Applications

In: STOCK MARKET CRASHES Predictable and Unpredictable and What To Do About Them

Author

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  • William T. Ziemba
  • Sebastien Lleo
  • Mikhail Zhitlukhin

Abstract

We present applications of a stochastic changepoint detection model in the context of bubble-like financial markets. The aim is to detect a direction change in a sequence of stock market or other asset index values as soon as it happens. A detection rule thus models an exit strategy in a possible market crash. We describe theoretical results in Sections 9.2 and apply them to several bubbles including markets in the US, China, Japan and Iceland in Sections 9.3–9.5.

Suggested Citation

  • William T. Ziemba & Sebastien Lleo & Mikhail Zhitlukhin, 2017. "A Stopping Rule Model for Exiting Bubble-like Markets with Applications," World Scientific Book Chapters, in: STOCK MARKET CRASHES Predictable and Unpredictable and What To Do About Them, chapter 9, pages 209-233, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813223851_0009
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    Keywords

    Stock Market Crashes; Brexit; Trump; Financial Bubbles;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General

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