Gresnigt, F., Kole, E. and Franses, P.H. (2015). Interpreting financial market crashes as earthquakes: A new early warning system for medium term crashes Journal of Banking and Finance, 56:123--139.
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Affiliated authors
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Publication year2015
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JournalJournal of Banking and Finance
To create probability predictions of a market crash occurring over a certain period, the authors propose a modeling framework based on similarities between stock returns around a market crash and seismic activity around earthquakes. They construct an early warning system for future crash days, test it on the S\&P 500 Index data during the financial crisis, and conclude that their model improves on existing volatility models.