EconPapers    
Economics at your fingertips  
 

Quantitative evaluation of consecutive resilience cycles in stock market performance: A systems-oriented approach

Junqing Tang and Hans R. Heinimann

Papers from arXiv.org

Abstract: Financial markets can be seen as complex systems that are constantly evolving and sensitive to external disturbance, such as systemic risks and economic instabilities. Analysis of resilient market performance, therefore, becomes useful for investors. From a systems perspective, this paper proposes a novel function-based resilience metric that considers the effect of two fault-tolerance thresholds: the Robustness Range (RR) and the Elasticity Threshold (ET). We examined the consecutive resilience cycles and their dynamics in the performance of two stock markets, NASDAQ and SSE. The proposed metric was also compared with three well-documented resilience models. The results showed that this new metric could satisfactorily quantify the time-varying resilience cycles in the multi-cycle volatile performance of stock markets while also being more feasible in comparative analysis. Furthermore, analysis of dynamics revealed that those consecutive resilience cycles in market performance were distributed non-linearly, following a power-law behavior in the upper tail. Finally, sensitivity tests demonstrated the large-value resilience cycles were relatively sensitive to changes in RR. In practice, RR could indicate investors' psychological capability to withstand downturns. It supports the observation that perception on the market's resilient responses may vary among investors. This study provides a new tool and valuable insight for researchers, practitioners, and investors when evaluating market performance.

Date: 2019-02
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://arxiv.org/pdf/1903.03201 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1903.03201

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().

 
Page updated 2019-03-30
Handle: RePEc:arx:papers:1903.03201