Stock market crashes in 2007–2009: were we able to predict them?

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Acknowledgements

This article was presented at the International Conference on Risk Management, Amsterdam, The Korea Advanced Institute for Science and Technology, the Izmir Options Exchange Turkey, Stanford University, Luiss Guido Carli University and Rensselaer Polytechnic Institute.

Notes

†Using a different index rather than the S&P500 leads to the same conclusion, but slightly different results. Berge et al. (2008) used the MSCI index. The danger zone was entered in May 1987 and the correction occurred in October, four months later. During June, July and August, investors kept rebalancing their portfolios from the bond to the equity market (MSCI TRI + 13.87% over the quarter), then the equity market fell 31.80% in the following quarter (September to November 1987) with the major decline occurring in October.