An analytical review of volatility metrics for bubbles and crashes

Abstract

Bubbles and crashes have long been an important area of research that has not yet led to a comprehensive theoretical or empirical understanding of how to define, measure, and compare such extreme market events. Highlights of the vast literature on bubbles, crashes, and volatility are surveyed and a promising direction for future research, based on a theory of short-side rationing, is described. The theory suggests that, especially in extreme market conditions, marginal quantities held or not held become transactionally more important than the prices paid or received. Our approach is empirically implemented by fitting monthly elasticity of returns variances to an exponential expression.

Negative bubbles and shocks in cryptocurrency markets

“…Historical Estimation Bias. The above also serve to highlight possible dangers regarding historical estimation bias and coincides with fears over illusory diversification raised in Vogel and Werner (2015). During a bubble regime prices may be rising at artificially high rates with comparatively little volatility compared to the underlying long-term values.…”

“…Kindelberger and Aliber (2005) describe bubbles as a sharp rise in asset prices -with the initial rise generating expectations of further rises and attracting new buyers via a process commonly labelled irrational exuberance (Shiller, 2005). However, beyond these definitions, and real economic suffering, both the theoretical existence of bubbles, and issues related to their empirical detection, remain hotly debated (Gurkaynak, 2008;Vogel and Werner, 2015). From a statistical physics perspective stock market crashes represent a rupture event in a complex system (Feigenbaum, 2003).…”

Twenty Years of Mortgage Banking in Slovakia

“…The problem of falling property prices has fully impacted the banks. Vogel and Werner (2015) analyzed bubbles and found that extreme market events are principally caused by excessive bank credit extensions for leveraged transactions that ignite and propel unsustainable market movements. "With the further development of volatility metrics such as those proposed, central bankers and governments might begin to assess economic and financial market conditions from new perspectives.…”

Cryptocurrency and Global Practices: Lessons for Nigeria

“…The price volatility often associated with cryptocurrency trade and investments have led to parallels being drawn with past historical financial market bubbles such as The South Sea, Mississipi and Tulia Mania bubbles [67][68][69][70][71][72]. The key lessons from these parallels relates to the notion of investment irrationality, monetary policy shocks and the need to balance the risk/return trade-off arising from investments [73][74][75].…”