WHEN THE BUBBLE IS GOING TO BURST …

Jing Chen ()
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Jing Chen: Department of Finance and Accounting, National University of Singapore, 10 Kent Ridge Crescent, 119260, Singapore

International Journal of Theoretical and Applied Finance (IJTAF), 1999, vol. 02, issue 03, 285-292

Abstract: There has been constant debate about the predictability of the security markets. We examine the relationship between the prices of a stock and its convertible bond during the Hong Kong stock market bubble of 1997 and its subsequent crash. We find that the price behavior of the share and the convertible bond not only gave a clear signal of the market reversal, but also the minimum range of the stock price change. This example offers concrete evidence that the market becomes highly predictable at times and gives us a chance to understand the relationship of the underlying stock and its derivatives during market bubbles.

Date: 1999
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DOI: 10.1142/S0219024999000169

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