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Article overview
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Quantitative evaluation of consecutive resilience cycles in stock market performance: A systems-oriented approach | | Junqing Tang
; Hans R. Heinimann
; | | Date: |
16 Feb 2019 | | Abstract: | Financial markets can be seen as complex systems that are constantly evolving
and sensitive to external disturbance, such as systemic risks and economic
instabilities. Analysis of resilient market performance, therefore, becomes
useful for investors. From a systems perspective, this paper proposes a novel
function-based resilience metric that considers the effect of two
fault-tolerance thresholds: the Robustness Range (RR) and the Elasticity
Threshold (ET). We examined the consecutive resilience cycles and their
dynamics in the performance of two stock markets, NASDAQ and SSE. The proposed
metric was also compared with three well-documented resilience models. The
results showed that this new metric could satisfactorily quantify the
time-varying resilience cycles in the multi-cycle volatile performance of stock
markets while also being more feasible in comparative analysis. Furthermore,
analysis of dynamics revealed that those consecutive resilience cycles in
market performance were distributed non-linearly, following a power-law
behavior in the upper tail. Finally, sensitivity tests demonstrated the
large-value resilience cycles were relatively sensitive to changes in RR. In
practice, RR could indicate investors’ psychological capability to withstand
downturns. It supports the observation that perception on the market’s
resilient responses may vary among investors. This study provides a new tool
and valuable insight for researchers, practitioners, and investors when
evaluating market performance. | | Source: | arXiv, 1903.3201 | | Services: | Forum | Review | PDF | Favorites | |
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