Has the Market Started to Collapse or Will It Resist?

Yao Kuang and Raphael Douady ()
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Yao Kuang: Department of Applied Mathematics and Statistics, State University of New York at Stony Brook, New York, NY 11794, USA

Stats, 2022, vol. 5, issue 2, 1-7

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.

Keywords: systemic risk; financial crisis; nonlinearity; Polymodel (search for similar items in EconPapers)
JEL-codes: C1 C10 C11 C14 C15 C16 (search for similar items in EconPapers)
Date: 2022
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