A Stopping Rule Model for Exiting Bubble-like Markets with Applications

William T. Ziemba, Sebastien Lleo and M. Zhitlukhin

Chapter 24 in Handbook of Applied Investment Research, 2020, pp 635-659 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We present applications of a stochastic changepoint detection model in the context of bubble-like financial markets. The aim is to detect a direction change in a sequence of stock market or other asset index values as soon as it happens. A detection rule thus models an exit strategy in a possible market crash. We describe theoretical results in Sections 9.2 and apply them to several bubbles including markets in the US, China, Japan and Iceland in Sections 9.3–9.5.

Keywords: Applied Investments; Financial Forecasting; Portfolio Theory; Investment Strategies; Fundamental and Economic Anomalies; Behaviour of Investors (search for similar items in EconPapers)
JEL-codes: G1 G11 G17 (search for similar items in EconPapers)
Date: 2020
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Chapter: A Stopping Rule Model for Exiting Bubble-like Markets with Applications (2017)
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