When to sell Apple and the NASDAQ? Trading bubbles with a stochastic disorder model

The Journal of Portfolio Management . 2014. Vol. 40. No. 2. P. 54–63.

Shiryaev A., Житлухин М. В., Ziemba W.

In this paper, the authors apply a continuous-time stochastic process model developed by Shiryaev and Zhutlukhin for optimally stopping random price processes that appear to be bubbles, defined as price increases that are largely based on the expectation of higher and higher future prices. Futures traders, such as George Soros, attempt to trade such markets, trying to exit near the peak from a starting long position. The model applies equally well to the question of when to enter and exit a short position. In this article, the authors test the model in two technology markets. These include the price of Apple computer stock from various times in 2009–2012 after the local low of March 6, 2009, plus a market in which the generally very successful bubble trader George Soros lost money by shorting the NASDAQ-100 stock index too soon in 2000. The model provides good exit points in both situations; these would have been profitable to speculators who employed the model.

Ключевые слова: Bubbles, Changepoint detection, Apple, NASDAQ