What is a Market Crash?
30 Pages Posted: 21 Oct 2010 Last revised: 12 Nov 2010
There are 2 versions of this paper
What Is a Market Crash?
What is a Market Crash?
Date Written: May 20, 2010
Abstract
Identifying market crashes can be problematic. In a stable financial environment, the same price variation in percentage will result in greater negative impact than during a highly volatile period.
In order to take into account changes of volatility throughout time, a new method is proposed, one which allows to adjust each price variation to accurately reflect its financial environment. This adjustment is made by measuring each price variation in number of standard-deviations calculated over the prior period. These adjusted variations can then be ranked therefore permitting the identification of market crashes. This method is tested on four long term series. Results on the French market, for example, are highly consistent with history. WWI caused major stock adjusted variations despite a low level of volatility and low price variations in percentage. Contemporary markets however are characterized more so by a high level of volatility than a time of frequent crashes.
Keywords: Market Crashes, Volatility, Rare Events, 19th Century, 20th Century
JEL Classification: G1, G12, N23, N24
Suggested Citation: Suggested Citation
Here is the Coronavirus
related research on SSRN
Recommended Papers
-
Predicting Financial Crashes Using Discrete Scale Invariance
By Anders Johansen and Didier Sornette
-
Large Stock Market Price Drawdowns are Outliers
By Anders Johansen and Didier Sornette
-
Significance of Log-Periodic Precursors to Financial Crashes
By Anders Johansen and Didier Sornette
-
On Rational Bubbles and Fat Tails
By Thomas Lux and Didier Sornette
-
Endogenous Versus Exogenous Crashes in Financial Markets
By Anders Johansen and Didier Sornette
-
By Anders Johansen and Didier Sornette
-
2000-2003 Real Estate Bubble in the UK But Not in the USA
By Wei-xing Zhou and Didier Sornette
-
Financial Bubbles, Real Estate Bubbles, Derivative Bubbles, and the Financial and Economic Crisis
By Didier Sornette and Ryan Woodard
-
Financial Bubbles, Real Estate Bubbles, Derivative Bubbles, and the Financial and Economic Crisis
By Didier Sornette and Ryan Woodard
-
Empirical Distributions of Log-Returns: Between the Stretched Exponential and the Power Law?
By Yannick Malevergne, Vladilen Pisarenko, ...
