RT Journal Article SR Electronic T1 When to Sell Apple and the Nasdaq? Trading Bubbles
with a Stochastic Disorder Model JF The Journal of Portfolio Management FD Institutional Investor Journals SP 54 OP 63 DO 10.3905/jpm.2014.40.2.054 VO 40 IS 2 A1 A.N. Shiryaev A1 M.V. Zhitlukhin A1 W.T. Ziemba YR 2014 UL https://pm-research.com/content/40/2/54.abstract AB 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.TOPICS: Exchanges/markets/clearinghouses, financial crises and financial market history, in markets