Escañuela Romana, Ignacio (2011): Empirical Evidence on the Predictability of Stock Market Cycles: the Behaviour of the Dow Jones Index Industrial Average in the Stock Market Crises of 1929, 1987 and 2007.
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Abstract
Based on a deterministic hypothesis, this paper aims to verify the regularity of the stock market cycles and, if this regularity is found, the ability to predict major stock market crises. Harmonic analysis, or Fourier series, is applied in order to, decomposing into sinusoids curves, find the constant periodicities hidden under the series of observed data. Starting from the industrial stock market data in the U.S., considering three periods of similar length of 165 months: 1919:01 to 1932:09, 1977:01 to 1999:09 and 1997:03 to 2010:11, I stand in the moment of maximum growth of the Dow Jones Industrial Average and I check if the most significant hidden periodicities allowed to predict the sharp drop in the index that was coming and the subsequent development. The evidence is inconclusive. A small number of theoretical cycles reasonably explain the stock market evolution. In terms of predictive power, in two cases there is this ability, while not in another. The conclusion reached indicates that, due to the regularity in the data, the application of the a deterministic hypothesis is reasonable. However, it is necessary to perform a deeper analysis of the data to be able to describe and predict major stock market cycles, including crises or large declines in stock market prices.
Item Type:  MPRA Paper 

Original Title:  Empirical Evidence on the Predictability of Stock Market Cycles: the Behaviour of the Dow Jones Index Industrial Average in the Stock Market Crises of 1929, 1987 and 2007. 
English Title:  Empirical Evidence on the Predictability of Stock Market Cycles: the Behaviour of the Dow Jones Index Industrial Average in the Stock Market Crises of 1929, 1987 and 2007. 
Language:  English 
Keywords:  Stock Market; Periodogram; Business Cycles Prediction 
Subjects:  C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C10  General E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E32  Business Fluctuations ; Cycles C  Mathematical and Quantitative Methods > C2  Single Equation Models ; Single Variables > C22  TimeSeries Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E37  Forecasting and Simulation: Models and Applications 
Item ID:  49226 
Depositing User:  Ignacio Escañuela Romana 
Date Deposited:  22 Aug 2013 09:14 
Last Modified:  26 Sep 2019 08:25 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/49226 
Available Versions of this Item

Evidencia empírica sobre la predictibilidad de los ciclos bursátiles: el comportamiento del índice Dow Jones Industrial Average en las crisis bursátiles de 1929, 1987 y 2997. (deposited 04 Sep 2011 09:53)
 Empirical Evidence on the Predictability of Stock Market Cycles: the Behaviour of the Dow Jones Index Industrial Average in the Stock Market Crises of 1929, 1987 and 2007. (deposited 22 Aug 2013 09:14) [Currently Displayed]