Stock Market Crashes: Predictable and Unpredictable and What to Do About Them (World Scientific Series in Finance) (World Scientific Finance)

BOOK REVIEW

REVIEW Stock Market Crashes: Predictable and Unpredictable and What to Do About Them BY WILLIAM T ZIEMBA, MIKHAIL ZHITLUKHIN, & SEBASTIAN LLEO

Stock Market Crashes: Predictable and Unpredictable and What to Do About Them (World Scientific Series in Finance) (World Scientific Finance)

Stock Market Crashes: Predictable and Unpredictable and What to Do About Them (World Scientific Series in Finance) (World Scientific Finance)

About the book

This book analyzes small and large stock market crashes that were caused by price surges or other causes. In some cases, the stock market experiences an immediate surge in prices followed by a sudden fall. This is called a bubble. This book analyzes historical crashes and determines the possible occurrence of a bubble, then proceeds to introduce predictive models that forecast the potential occurrence of a bubble in the near future. 

These predictive models have proven to be effective in forecasting steep declines in the stock market. Four predictive models are introduced herein. Among them is the Bond-Stock Earnings Yield Differential Model, which was developed from the famous 1987 crash of the S&P 500 futures, amounting to a 29% drop within one day’s trading hours. 

Review

This book is a recommended read for researchers, business students, and even the general public who are willing to learn about the nature of stock market crashes and its effect on the economy and personal lives. The authors share their knowledge on how to prevent a sudden stock market decline by citing decades’ worth of data, research, and analysis. 

It is a well-written documentary of the historical market crashes and the events that led to it. It helps investors and market analysts prevent these disasters by using the predictive models presented by the authors in the book. 

About the Author

WILLIAM T ZIEMBA is an Alumni Professor (Emeritus) of Financial Modeling and Stochastic Optimization in the Sauder School of Business at the University of British Columbia. He earned his Ph.D. from the University of California, Berkeley. He is currently the Distinguished Visiting Research Associate, Systemic Risk Centre, London School of Economics.

SEBASTIEN LLEO is an Associate Professor in the Finance Department at NEOMA Business School in France. He is a tutor on the Certificate in Quantitative Finance at FitchLearning in the UK. He is currently the Director of NEOMA’s doctoral programs.

MIKHAIL ZHITLUKHIN is a researcher at Steklov Mathematical Institute in Moscow, Russia. He is a lecturer at the Higher School of Economics, Moscow. He holds a Ph.D. from Steklov Institute and the University of Manchester in the UK. 

Table of Contents

Review Quotes

Dedication

Preface

About the Authors

  1. Introduction
  2. Discovery of the Bond-Stock Earnings Yield Differential Model
  3. Prediction of the 2007-2009 Stock Market Crashes in the US, China, and Iceland
  4. The High Price-Earnings Stock Market Danger Approach of Campbell and Shiller                      versus the BSEYD Model
  5. Other Prediction Models for the Big Crashes Averaging -25%
  6. Effect of Fed Meetings and Small-Cap Dominance
  7. Using Zweig’s Monetary and Momentum Models in the Modern Era
  8. Analysis and Possible Prediction of Declines in the -5% to -15% Range
  9. A Stopping Rule Model for Exiting Bubble-like Markets with Applications
  10. A Simple Procedure to Incorporate Predictive Models in Stochastic Investment Models

Appendix A. Other Bubble-testing Methodologies and Historical Bubbles

Appendix B. Mathematics of the Changepoint Detection Model

Bibliography

Index

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