An Important Predictor of Market Bubbles, Crashes and Corrections

3 Pages Posted: 7 Jun 2017

Date Written: June 6, 2017

Abstract

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

Saint-Pierre, Jacques, An Important Predictor of Market Bubbles, Crashes and Corrections (June 6, 2017). Available at SSRN: https://ssrn.com/abstract=2981745 or http://dx.doi.org/10.2139/ssrn.2981745

Jacques Saint-Pierre (Contact Author)

Laval University ( email )

School of Business
Palasis-Prince Building
Quebec, Quebec G1K 7P4
Canada
418-839-9964 (Phone)

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