New Stock Market Signal Identifies Bubbles, Researchers Say

Wired:

Complexity researchers who study the behavior of stock markets may have identified a signal that precedes crashes.

They say the telltale sign is a measure of co-movement, or the likelihood of stocks to move in the same direction. When a market is healthy, co-movement is low. But in the months and years before a crash, co-movement seems to grow.

Read the whole story: Wired

Comments

[dayzee10]

01:50 AM on 03/22/2011

what is wrong with these researchers? They developed a good theory why let anyone else know? They could have gotten their assets together and entered the stock market casino and make a bundle.

[MikeyJaii]

08:31 PM on 03/21/2011

Yes.. researchers say a lot of things. And often they're all wrong.

[drkazmd65]

03:46 PM on 03/21/2011

The idea is simple enough to make some sense,... same sort of human behavior that makes fads briefly 'pop' and then wink out of existance.

Just another example of herd dynamics where the sheep are following some percieved leader.

That's why I always try to be a skeptic and a bit of a contrarian.

[grouseless54]

10:29 AM on 03/22/2011

Dear drkazmd65:
Just so. And this is hardly a new concept. Someone asked JPMorgan how he got so rich. Answer: "I sold too soon." Contrarians Unite!

[blitznstitch]

02:31 PM on 03/21/2011

co-movement is a fancy term for the simple concept of "jump on the gravy train" duh! of course a market bubble entails masses of people reaping the rewards of doing substantially exactly the same thing! Everyone was buying mortgage securities like crazy, trading them around, insuring them, and dicing them up into pieces that defied logic.

[ArjenBoatsma]

12:52 PM on 03/21/2011

I'm sure a couple of unscrupulous financial whiz-kids are already designing new financial instruments to capitalize on this newest phenomenon.

[notdarkyet]

11:43 AM on 03/21/2011

Well the bells should be ringing loudly right about now.

[tacevad]

10:29 AM on 03/21/2011

my personal general rule when it comes to gambling is to never bet more than you are willing to lose. I may never get rich but I'll never go broke either.

[ILibertine]

12:13 PM on 03/21/2011

Your rule echoes with me. Isn't it curious, however, that so many are forced into the equivalent of gambling with their retirement income while secure vehicles such as CDs are made virtually worthless investments in order to bail out high stakes gamblers?

[ArjenBoatsma]

12:53 PM on 03/21/2011

This rule only applies to gambling with your own money. Gambling with someone else's money is an entirely different matter!

[jtabs]

01:17 PM on 03/21/2011

And therein lies the problem as hedge funds and investment houses are not dealing with their funds and are convinced that profits will be privatized and losses socialized as has happened in the past.