A Three‐Regime Model of Speculative Behaviour

Modelling the Evolution of the S&P 500 Composite Index

Bibliographic Data

ID9714233
AuthorsChris Brooks (0009-0003-4507-357X, Cass Business School), Apostolos Katsaris (Cass Business School)
Year2005
Volume115
Issue505
Pages767-797
Publication date2005-07-01
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/j.1468-0297.2005.01019.x
OpenAlexW3123666643
LanguageEN
Citations received3
References cited39

We examine whether a three-regime model that allows for dormant, explosive and collapsing speculative behaviour can explain the dynamics of the S&P 500. We extend existing models of speculative behaviour by including a third regime that allows a bubble to grow at a steady rate, and propose abnormal volume as an indicator of the probable time of bubble collapse. We also examine the financial usefulness of the three-regime model by studying a trading rule formed using inferences from it, whose use leads to higher Sharpe ratios and end of period wealth than from employing existing models or a buy-and-hold strategy. Copyright 2005 Royal Economic Society

Bubble · Composite index · Composite indicator · Econometrics · Economic bubble · Economics · Explosive material · Financial economics · Index (typography · Mechanics · Monetary economics · Physics · Portfolio · Sharpe ratio · Chemistry · Complex Systems and Time Series Analysis · Computer Science · Economic theories and models · Financial Markets and Investment Strategies

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