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Stock Market Crashes in 2007-2009: Were We Able to Predict Them?
2011
Social Science Research Network
We investigate the stock market crashes in China, Iceland, and the US in the 2007-2009 period. The bond stock earnings yield difference model is used as a prediction tool. Historically, when the measure is too high, meaning that long bond interest rates are too high relative to the trailing earnings over price ratio, then there usually is a crash of 10% or more within four to twelve months. The model did in fact predict all three crashes. Iceland had a drop of fully 95%, China fell by two thirds and the US by 57%. JEL: G14, G15, G12, G10
doi:10.2139/ssrn.1884081
fatcat:pmylpbjqnrh6dew6ejlobxp7xy