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.
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