Standard Deviation Correlation Variation as a Measure of an Impending Market Crash
32 Pages Posted: 7 Dec 2008 Last revised: 31 May 2009
Date Written: October 25, 2008
Abstract
This paper investigates the events that run up to the current global rout of financial distress evolving into a full blown stock market crash across the globe. Here, we summarize the episodes with the aid of statistical methods employed to study the sequence of events that lead to the current turmoil. Our approach is from a different viewpoint that has yielded substantial information regarding the sequences using parameters for volatility assumptions from statistical outputs as a measure of standard deviations under current settings. We have shown that the modeled behavior patterns of indices substantiated clinical inferences and path prognostic features that correlated with the kinematics of indicial movements. The cross-sectional model that we have used attempts to assess the market behavior, before and after the current crisis with empirical specifications thereafter which ascertained the effects of changing volatility levels as a diagnostic feature impounding a market crash. We also find that our volatility assumptions are effectual.
Keywords: Standard Deviation, Stock Market Crash, Stock Market Bubble, Volatility, Mean Reversion
JEL Classification: C1, C10
Suggested Citation: Suggested Citation
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