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Has the Market Started to Collapse or Will It Resist?

Author

Listed:
  • Yao Kuang

    (SBU - Stony Brook University [SUNY] - SUNY - State University of New York)

  • Raphaël Douady

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

Many people are concerned about the stock market in 2022 as it faces several threats, from rising inflation rates to geopolitical events. The S&P 500 Index has already dropped about 10% from the peak in early January 2022 until the end of February 2022. This paper aims at updating the crisis indicator to predict when the market may experience a significant drawdown, which we developed in Crisis Risk Prediction with Concavity from Polymodel (2022). This indicator uses regime switching and Polymodel theory to calculate the market concavity. We found that concavity had not increased in the past 6 months. We conclude that at present, the market does not bear inherent dynamic instability. This does not exclude a possible collapse which would be due to external events unrelated to financial markets.

Suggested Citation

  • Yao Kuang & Raphaël Douady, 2022. "Has the Market Started to Collapse or Will It Resist?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-03929240, HAL.
    • Handle: RePEc:hal:cesptp:hal-03929240
    DOI: 10.3390/stats5020023
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