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Effectiveness of measures of performance during speculative bubbles

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  • Petroni, Filippo
  • Rotundo, Giulia

Abstract

Statistical analysis of financial data mostly focused on testing the validity of Brownian motion (Bm). Analyses performed on several time series have shown deviation from the Bm hypothesis, that is at the base of the evaluation of many financial derivatives. We analyze the behavior of performance measures based on maximum drawdown movements (MDD(T)), testing their stability when the underlying process deviates from the Bm hypothesis. In particular we consider the fractional Brownian motion (fBm), and fluctuations estimated empirically on raw market data. The case study of the rising part of speculative bubbles is reported.

Suggested Citation

  • Petroni, Filippo & Rotundo, Giulia, 2008. "Effectiveness of measures of performance during speculative bubbles," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(15), pages 3942-3948.
    • Handle: RePEc:eee:phsmap:v:387:y:2008:i:15:p:3942-3948
    DOI: 10.1016/j.physa.2008.02.070
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    References listed on IDEAS

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    1. D. Sornette, 2003. "Critical Market Crashes," Papers cond-mat/0301543, arXiv.org.
    2. Ausloos, M, 2002. "Empirical Analysis of Time Series," MPRA Paper 28700, University Library of Munich, Germany.
    3. Anders Johansen & Didier Sornette, 2000. "The Nasdaq crash of April 2000: Yet another example of log-periodicity in a speculative bubble ending in a crash," Papers cond-mat/0004263, arXiv.org, revised May 2000.
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    Cited by:

    1. Schuhmacher, Frank & Eling, Martin, 2011. "Sufficient conditions for expected utility to imply drawdown-based performance rankings," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2311-2318, September.

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