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

In: HANDBOOK OF APPLIED INVESTMENT RESEARCH

Author

Listed:
  • William T. Ziemba
  • S. Lleo
  • M. Zhitlukhin

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.

Suggested Citation

  • William T. Ziemba & S. Lleo & M. Zhitlukhin, 2020. "A Stopping Rule Model for Exiting Bubble-like Markets with Applications," World Scientific Book Chapters, in: John B Guerard & William T Ziemba (ed.), HANDBOOK OF APPLIED INVESTMENT RESEARCH, chapter 24, pages 635-659, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811222634_0024
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    Keywords

    Applied Investments; Financial Forecasting; Portfolio Theory; Investment Strategies; Fundamental and Economic Anomalies; Behaviour of Investors;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G1 - Financial Economics - - General Financial Markets

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