A piece in Dow Jones / Markt Watch (gated).
“Froth forecasts” compiled by State Street Associates (based on research by Harvard University professor Robin Greenwood):
- probability of a 40% decline at some point over the next two years — the operational definition of a crash that they use — is calculated to be 18%, lower than the trailing five-year average of forecasted probabilities of 26%.
- crash probabilities are a function of the U.S. stock market’s performance over the past two years. As past performance increases, so does the probability of a subsequent crash. When the trailing two-year price runup is 100%, for example, the probability of a subsequent crash is close to 50%. When the trailing price-runup is 150%, “a crash is nearly certain.”
Here is the link for more if you can access it
This article was written by Eamonn Sheridan at www.forexlive.com.
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