Interpreting financial market crashes as earthquakes: A new early warning system for medium term crashes

Francine Gresnigt, Erik Kole, Philip Hans Franses

Research output: Contribution to journalArticleAcademicpeer-review

26 Citations (Scopus)

Abstract

To create probability predictions of a market crash occurring over a certain period, the authors propose a modeling framework based on similarities between stock returns around a market crash and seismic activity around earthquakes. They construct an early warning system for future crash days, test it on the S&P 500 Index data during the financial crisis, and conclude that their model improves on existing volatility models.
Original languageEnglish
Pages (from-to)123-139
Number of pages17
JournalJournal of Banking and Finance
Volume56
DOIs
Publication statusPublished - 2015

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