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Article

When to Sell Apple and the Nasdaq? Trading Bubbles
with a Stochastic Disorder Model

A.N. Shiryaev, M.V. Zhitlukhin and W.T. Ziemba
The Journal of Portfolio Management Winter 2014, 40 (2) 54-63; DOI: https://doi.org/10.3905/jpm.2014.40.2.054
A.N. Shiryaev
is a professor at the Steklov Mathematical Institute and the Moscow State University in Moscow, Russia.
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  • For correspondence: albertsh@mi.ras.ru
M.V. Zhitlukhin
is a research fellow at the Steklov Mathematical Institute and the Higher School of Economics in Moscow, Russia and the University of Manchester in Manchester, UK.
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  • For correspondence: mikhailzh@mi.ras.ru
W.T. Ziemba
is the Alumni Professor of Financial Modeling and Stochastic Optimization (Emeritus) at the University of British Columbia, Vancouver, BC, a visiting professor at the University of Manchester, Manchester, UK, a visiting professor at Sabanci University, Turkey, and Distinguished Visiting Research Associate at the Systemic Risk Centre of the London School of Economics in London, UK.
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  • For correspondence: wtzimi@mac.com
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Abstract

In this paper, the authors apply a continuous-time stochastic process model developed by Shiryaev and Zhutlukhin for optimally stopping random price processes that appear to be bubbles, defined as price increases that are largely based on the expectation of higher and higher future prices. Futures traders, such as George Soros, attempt to trade such markets, trying to exit near the peak from a starting long position. The model applies equally well to the question of when to enter and exit a short position. In this article, the authors test the model in two technology markets. These include the price of Apple computer stock from various times in 2009–2012 after the local low of March 6, 2009, plus a market in which the generally very successful bubble trader George Soros lost money by shorting the NASDAQ-100 stock index too soon in 2000. The model provides good exit points in both situations; these would have been profitable to speculators who employed the model.

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The Journal of Portfolio Management: 40 (2)
The Journal of Portfolio Management
Vol. 40, Issue 2
Winter 2014
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When to Sell Apple and the Nasdaq? Trading Bubbles
with a Stochastic Disorder Model
A.N. Shiryaev, M.V. Zhitlukhin, W.T. Ziemba
The Journal of Portfolio Management Jan 2014, 40 (2) 54-63; DOI: 10.3905/jpm.2014.40.2.054

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When to Sell Apple and the Nasdaq? Trading Bubbles
with a Stochastic Disorder Model
A.N. Shiryaev, M.V. Zhitlukhin, W.T. Ziemba
The Journal of Portfolio Management Jan 2014, 40 (2) 54-63; DOI: 10.3905/jpm.2014.40.2.054
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  • Article
    • Abstract
    • AAPL RISES AND FALLS
    • APPLYING THE MODEL TO THE AAPL BUBBLE
    • THE INTERNET BUBBLE CRASH OF 2000–2002
    • APPENDIX
    • ENDNOTES
    • REFERENCES
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