An Important Predictor of Market Bubbles, Crashes and Corrections
3 Pages Posted: 7 Jun 2017
Date Written: June 6, 2017
We propose a predictor of market bubbles, crashes and corrections that is based on the relationship between the following two ratios: (Market value of the firm compared to its intrinsic value, MV/IV) and the (return on capital of the firm versus its cost of capital, R/C*). We apply the model to evaluate the state of the market actually and to detect a forthcoming market bubble, crash or correction.
Keywords: Prediction, bubbles, crashes, efficient capital markets.
JEL Classification: B41, C53, E17, E27, E37, E44, G14, G17.
Suggested Citation: Suggested Citation