Capital Ideas and Market Realities: Option Replication, Investor Behavior, and Stock Market Crashes (Postscript: Author's Comment)

We investigate how the experience of stock market shocks, such as the COVID-19 crash, influences risk-taking behavior. To isolate changes in risk taking from other factors during stock market crashes, we ran controlled experiments with finance professionals in December 2019 and March 2020. We observe that their investments in the experiment were 12 percent lower in March 2020 than in December 2019, although their price expectations had not changed, and although they considered the experimental asset less risky during the crash than before. Thus, lower investments are driven by higher risk aversion, not by changes in beliefs.

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Prediction of the 2007–2009 Stock Market Crashes in the US, China and Iceland

Stock Market Crashes - World Scientific Series in Finance ◽

10.1142/9789813223851_0003 ◽

2017 ◽

pp. 25-53

Keyword(s):

Stock Market ◽

Market Crashes ◽

The Us

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Prediction of Bubbles, Crashes, and Antibubbles

Why Stock Markets Crash ◽

10.23943/princeton/9780691175959.003.0009 ◽

2017 ◽

Cited By ~ 1

Author(s):

Didier Sornette

Keyword(s):

Stock Market ◽

Case Studies ◽

Power Law ◽

Statistical Tests ◽

Statistical Significance ◽

Large Market ◽

Simple Power ◽

Market Crashes ◽

Successes And Failures

This chapter examines how to predict stock market crashes and other large market events as well as the limitations of forecasting, in particular in terms of the horizon of visibility and expected precision. Several case studies are presented in detail, with a careful count of successes and failures. After providing an overview of the nature of predictions, the chapter explains how to develop and interpret statistical tests of log-periodicity. It then considers the concept of an “antibubble,” using as an example the Japanese collapse from the beginning of 1990 to the present. It also describes the first guidelines for prediction, a hierarchy of prediction schemes that includes the simple power law, and the statistical significance of the forward predictions.

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Modeling Financial Bubbles and Market Crashes

Why Stock Markets Crash ◽

10.23943/princeton/9780691175959.003.0005 ◽

2017 ◽

Author(s):

Didier Sornette

Keyword(s):

Stock Market ◽

Hazard Rate ◽

Market Price ◽

Imitative Behavior ◽

Rational Model ◽

Basic Principles ◽

Market Prices ◽

Speculative Bubbles ◽

Financial Bubbles ◽

Market Crashes

This chapter considers two versions of a rational model of speculative bubbles and stock market crashes. According to the first version, stock market prices are driven by the crash hazard that may increase sometimes due to the collective behavior of “noise traders.” The second version assumes the opposite: the crash hazard is driven by prices that may soar sometimes, again due to investors' speculative or imitative behavior. The chapter first provides an overview of what a model is before discussing the basic principles of model construction in finance. It then describes the basic ingredients of the two models of speculative bubbles and market crashes, along with the main properties of the risk-driven model. It also examines how imitation and herding drive the crash hazard rate and concludes with an analysis of the price-driven model, how imitation and herding drive the market price, and how the price return drives the crash hazard rate.

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Factors influencing investor behavior: an empirical study of Saudi Stock Market

International Journal of Social Economics ◽

10.1108/ijse-07-2020-0496 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Muhammad Junaid Khawaja ◽

Zainab Nasser Alharbi

Keyword(s):

Saudi Arabia ◽

Stock Market ◽

Individual Characteristics ◽

Investor Behavior ◽

Social Implications ◽

Primary Data ◽

Past Performance ◽

Content Type ◽

Factors Influencing ◽

The Government

PurposeThe objective of the study is to determine the factors influencing the behavior of investor in Saudi Stock Market.Design/methodology/approachThe paper uses correlation analysis, factor analysis, reliability and multiple regression analysis on the primary data collected from 125 investors in Saudi Stock Market through a questionnaire distributed randomly.FindingsThe results indicate that the factors like past performance of the stocks, financial statements, firm status in industry, the reputation of the firm, and expected corporate earnings have significant influence on the behavior of investors. The factor of the image that a certain company has built for itself over the years on the basis of its financial practices is a large influencer of investor decisions as compared to advocate recommendation factors. The investment behavior is not significantly influenced by gender or age; however, it is significantly influenced by educational qualification, professional experience and investment volume.Research limitations/implicationsThis paper limits itself to study the factors that influence the behavior of investors. However, it does not address the issue of investor overconfidence and its implications for Saudi Stock Market.Practical implicationsThis research provides a road map for the investors interested in making their investment decisions by understanding the most influencing factors.Social implicationsThis research has social implications for government agencies to delineate the required legislation to regulate the investors and also to increase market efficiency. The results show that investors are strongly affected by signals from the government.Originality/valueThis research is an original contribution toward the behavioral finance field in Saudi Arabia and can be used as a reference material for investors, companies and government policymakers in Saudi Arabia. This study incorporates investors' individual characteristics and explores factors that influence investor behavior unlike some previous studies using Saudi data.

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