STOCK MARKET CRASHES IN 2007–2009: WERE WE ABLE TO PREDICT THEM?

Sebastien Lleo and William T. Ziemba
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William T. Ziemba: University of British Columbia, Canada and University of Reading, UK

Chapter 13 in Managing and Measuring Risk:Emerging Global Standards and Regulations After the Financial Crisis, 2013, pp 457-499 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractWe investigate the stock market crashes in China, Iceland, and the US in the 2007–2009 period. The bond stock earnings yield difference model is used as a prediction tool. Historically, when the measure is too high, meaning that long bond interest rates are too high relative to the trailing earnings over price ratio, then there usually is a crash of 10% or more within four to twelve months. The model did in fact predict all three crashes. Iceland had a drop of fully 95%, China fell by two thirds and the US by 57%.

Keywords: Risk Management; Sovereign Risk; Systemic Risk; Liquidity; Credit Risk; Equity Risk Premium; Enterprise Risk Management (search for similar items in EconPapers)
Date: 2013
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Related works:
Chapter: Stock market crashes in 2007–2009: were we able to predict them? (2024)
Journal Article: Stock market crashes in 2007--2009: were we able to predict them? (2012)
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