Modelling Bubbles and Anti-Bubbles in Bear Markets: A Medium-Term Trading Analysis

THE HANDBOOK OF TRADING, McGraw-Hill Finance and Investing, pp. 365-388, 2010

Posted: 13 Aug 2010

See all articles by Dean Fantazzini

Dean Fantazzini

Moscow School of Economics, Moscow State University; National Research University Higher School of Economics

Date Written: August 11, 2010

Abstract

The current volatile market situation with sudden changes seems all but predictable. However, some recent works have suggested that, prior to crashes as well as after crashes, financial asset prices can be characterized by a power law acceleration decorated with log-periodic oscillations. Johansen and Sornette (1999) and Zhou and Sornette (2005) show that these processes take place because of the traders’ herding behavior which can progressively occur and strengthen itself into “bullish” or “bearish” market phases, thus forming bubbles and anti-bubbles, respectively. We briefly review the theory behind this kind of modeling and we perform an empirical analysis with different world stock market indexes to verify whether a medium-term trading strategy based on this modeling can outperform simple buy-and-hold or short-and-hold strategies.

Keywords: Log-periodic models, Crashes, Bubbles, Anti-Bubbles, Long-term Forecasting, Out-of-sample Forecasting, Buy-and-Hold, Short-and-Hold

JEL Classification: C32, C51, C53, G17

Suggested Citation

Fantazzini, Dean, Modelling Bubbles and Anti-Bubbles in Bear Markets: A Medium-Term Trading Analysis (August 11, 2010). THE HANDBOOK OF TRADING, McGraw-Hill Finance and Investing, pp. 365-388, 2010. Available at SSRN: https://ssrn.com/abstract=1657038

Dean Fantazzini (Contact Author)

Moscow School of Economics, Moscow State University ( email )

GSP-2, Leninskie Gory
Moscow, 119992
Russia
+7 495 5105256 (Phone)
+7 495 5105267 (Fax)

HOME PAGE: https://sites.google.com/site/deanfantazzini/

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

HOME PAGE: http://www.hse.ru/org/persons/11532644

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