A Tale of Two Indexes: Predicting Equity Market Downturns in China

Sebastien Lleo and Bill Ziemba

Predicting stock market crashes is a focus of interest for both researchers and practitioners. Several prediction models have been developed, mostly for use on mature fi nancial markets. In this paper, we investigate whether traditional crash predictors, the price-to-earnings ratio, the Cyclically Adjusted Price-to-Earnings ratio and the Bond-Stock Earnings Yield Differential model, predicts crashes for the Shanghai Stock Exchange Composite Index and the Shenzhen Stock Exchange Composite Index.

Publication number: 
DP 72