TY - JOUR T1 - Can We Predict Stock Market Crashes? JF - The Journal of Portfolio Management SP - 183 LP - 195 DO - 10.3905/jpm.2014.40.5.183 VL - 40 IS - 5 AU - Sergio M. Focardi AU - Frank J. Fabozzi Y1 - 2014/09/30 UR - https://pm-research.com/content/40/5/183.abstract N2 - In this article, the authors suggest how to think about a new framework for the analysis of financial bubbles and a possible vector of variables able to signal when an economy enters a state of disequilibrium. The working hypothesis is that market crashes are preceded by a bubble. The authors define a bubble as an anomalous increase in asset prices with respect to the economy. An exponentially growing spread between asset prices and the economy is therefore an indicator of the probability that a bubble is in the making. However, as the authors point out, this indicator alone is not sufficient as anomalous price growth can be generated by different macroeconomic scenarios. The authors discuss different macroscenarios that can lead to bubbles and the related indicators.TOPICS: Financial crises and financial market history, exchanges/markets/clearinghouses, portfolio theory ER -