Possible Early Warning Sign for Market Crashes

From Wired comes this:

Complexity researchers who study the behavior of stock markets may have identified a signal that precedes crashes. They say the telltale sign is a measure of co-movement, or the likelihood of stocks to move in the same direction. When a market is healthy, co-movement is low. But in the months and years before a crash, co-movement seems to grow.

It continues:

“The financial crisis has shown that mainstream economic theories have limitations that need to be overcome,” said Dirk Helbing of the Swiss Federal Institute of Technology, who specializes in modeling crowd behavior. “Economic systems have become much more complex, and complex systems have certain features — cascading effects, systemic shifts. This calls for new theoretical approaches.”

When will major publications (like Wired), that always love to reveal “new thinking”, learn that the strategies that take advantage of crashes — already exist. Surprise: trend following.

One thought on “Possible Early Warning Sign for Market Crashes

  1. Their prediction doesn’t matter…according to Nostradamus the Planet X Nibiru will collide with Earth in 2012. This prediction is further corroborated by the Mayan calendar and Glen Beck…with the end of the world as we know it, commodities should do well and George Soros will rule us all.

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