Is Volatility A Good Predictor Of Financial Bubbles?

The answer may surprise you…

Since bubbles in financial assets aren’t something we experience on a weekly basis, there’s not a lot of mental recognition of the environments that surround them. Ask someone a question pertaining to the 2007 peak in stocks and volatility and they’ll likely point to who volatility was well off its low by the time the major stock indices put in their peak. If you were to ask me the same question that’s probably the answer I would have given too. This response is what makes this recent research by three professors in Zurich Switzerland so interesting.

Titled, “Can We Use Volatility to Diagnose Financial Bubbles? Lessons from 40 historical bubbles”, Sornett, Cauwels, and Smilyanov studied the past 40 bubbles in financial history from markets, commodities, to individual stocks in order to uncover if there was any commonalty to volatility before the bubbles burst.

Keep Reading: Is Volatility A Good Predictor Of Financial Bubbles? (See It Market)

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

About Andrew Thrasher, CMT

Andrew Thrasher, CMT is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.
  • Owen Crisp

    Andrew: I have followed you for a long time and like how you provide a direction to your work and what one might take away. I would suggest that this posting lacked that. I am not one of your loyal followers who wants the in depth technical reading that this post lead to.

    What I love and would ask for in this is for you to post the conclusions in your post here. Make it easy for me. If you would like to take this off line, do reach out.