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Bubble detection and sector trading in real time

Journal Article


Abstract


  • We conduct a pseudo real-time analysis of the existence and extent of speculative bubbles in 11+ US sectors over the period January 1973–May 2015. Based on computed bubble signals, a trading strategy is constructed which switches funds between the market index and those industry sectors that exhibit bubble dynamics. Our strategy generates the highest after-transaction-cost return and Sharpe ratio, and first-order stochastically dominates a range of alternative strategies we consider, including the buy-and-hold investment in the market index. Subsample analysis and specification checks confirm the robustness of our findings.

UOW Authors


  •   Milunovich, George (external author)
  •   Shi, Shuping (external author)
  •   Tan, David

Publication Date


  • 2019

Citation


  • Milunovich, G., Shi, S. & Tan, D. (2019). Bubble detection and sector trading in real time. Quantitative Finance, 19 (2), 247-263.

Scopus Eid


  • 2-s2.0-85048188348

Number Of Pages


  • 16

Start Page


  • 247

End Page


  • 263

Volume


  • 19

Issue


  • 2

Place Of Publication


  • United Kingdom

Abstract


  • We conduct a pseudo real-time analysis of the existence and extent of speculative bubbles in 11+ US sectors over the period January 1973–May 2015. Based on computed bubble signals, a trading strategy is constructed which switches funds between the market index and those industry sectors that exhibit bubble dynamics. Our strategy generates the highest after-transaction-cost return and Sharpe ratio, and first-order stochastically dominates a range of alternative strategies we consider, including the buy-and-hold investment in the market index. Subsample analysis and specification checks confirm the robustness of our findings.

UOW Authors


  •   Milunovich, George (external author)
  •   Shi, Shuping (external author)
  •   Tan, David

Publication Date


  • 2019

Citation


  • Milunovich, G., Shi, S. & Tan, D. (2019). Bubble detection and sector trading in real time. Quantitative Finance, 19 (2), 247-263.

Scopus Eid


  • 2-s2.0-85048188348

Number Of Pages


  • 16

Start Page


  • 247

End Page


  • 263

Volume


  • 19

Issue


  • 2

Place Of Publication


  • United Kingdom