Can market signals and investor biases warn of a market crash?

Authors

Shah, Chirayu

Issue Date

2019

Degree

MBA in Finance

Publisher

Dublin Business School

Rights

Items in eSource are protected by copyright. Previously published items are made available in accordance with the copyright policy of the publisher/copyright holder.

Abstract

Financial markets have become more and more complicated over the years. Since the last global market crash, forecasting market behaviours has become infinitely more complex. These very market investment biases and signals that markets reflect, go unnoticed most of the time and therefore have been understudied. The study on the existence of these biases and signals present in the markets prior to a crash, will help individuals and institutions lookout for these indications and make better financial decisions with their investments. A pragmatic approach was taken to allow more flexibility. The qualitative study, for the most part, examines the precursory signals that are existent in the markets prior to a crash. This data is collected by conducting three interviews with experts of the financial markets. The quantitative research examines the behaviours of investors through their investment habits which can be found in their cognitive biases for which a self-assessment bias study was created, in addition to it. The qualitative part is then compared with the quantitative study wherever necessary. Crucial behaviours are analysed with the help of studying these biases and subsequently interpreted. Market precursors are studied upon that are reflective indicators of a failing market. At the end of the research work, advice is given on investment behaviour impacts to be aware of and, market indicators that should be particularly looked out for in order to identify a potentially failing market.