Forecasting of Crisis Phenomena in Emerging Financial Market: Real-Time Monitoring of Demand and Supply Anomalies in the Stock Exchange
Forecasting of Crisis Phenomena in Emerging Financial Market: Real-Time Monitoring of Demand and Supply Anomalies in the Stock Exchange

Author(s): Sergey Petrov, Nadezhda Yashina, Oksana Kashina, Natalia N. PRONCHATOVA-RUBTSOVA
Subject(s): Economic history, Transformation Period (1990 - 2010), Financial Markets
Published by: Masarykova univerzita nakladatelství
Keywords: financial crisis forecasting; asset pricing theory; demand and supply in the stock exchange; emerging markets; bid-ask quotations in the stock exchange;
Summary/Abstract: The aim of the paper is to examine “anomalies” of instantaneous demand and supply in the stock exchange that was detected as alarm signals of a financial crisis in authors’ investigations. The authors proposed to record and to analyze online information on bid-ask quotations in the stock exchange to monitor how the large investors’ sentiment varies in real time. The original theoretical model of share pricing developed in the previous authors’ papers plays a key role for such analysis. The model is based on the concept of time-varying Walrasian equilibrium under exchange processes in the stock exchange. Many observations for emerging stock market in Russia between 2008 and 2017 show that if capital holdings of traders on the side of demand is systematically higher than the ones on the side of supply, in most cases the uptrend will take place for share price later on; similar statement is also valid for downtrend forecasting. However, this regularity is violated in rare conditions that may be specified as “anomalies” of demand and supply. The result of the analysis carried out is that the anomalies are the specific features of drastic and protracted crises, such as stock market crash in Russia in 2008-2009. The hypothesis that investigating the anomalies of demand and supply one can foresee the beginning of protracted crisis as well as its finish was successfully verified: an investment strategy based on the idea has shown a statistically significant “abnormal” return over the period of the crisis.

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