Identifying the bottom line after a stock market crash
Abstract
In this empirical paper we show that in the months following a crash there is a distinct connection between the fall of stock prices and the increase in the range of interest rates for a sample of bonds. This variable, which is often referred to as the interest rate spread variable, can be considered as a statistical measure for the disparity in lenders' opinions about the future; in other words, it provides an operational definition of the uncertainty faced by economic agents. The observation that there is a strong negative correlation between stock prices and the spread variable relies on the examination of 8 major crashes in the United States between 1857 and 1987. That relationship which has remained valid for one and a half century in spite of important changes in the organization of financial markets can be of interest in the perspective of Monte Carlo simulations of stock markets.
Keywords
Cite
@article{arxiv.cond-mat/9910213,
title = {Identifying the bottom line after a stock market crash},
author = {B. M. Roehner},
journal= {arXiv preprint arXiv:cond-mat/9910213},
year = {2009}
}
Comments
6 pages, one figure (8 graphics)