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To What Extent Can Risk Indicators Identify a Coming Financial Crisis? Evaluating Indicator Performance On Economic Downturns In The US.

Bernhardsson, Hugo LU and Lantz, Alexander LU (2024) NEKH02 20232
Department of Economics
Abstract
There are several economic variables used by investors to assess the risk of financial downturns. In this paper, we test twelve variables, divided into three categories: macroeconomic-, financial risk-, and sentiment indicators, in a logistic regression model, on in-sample data, with a binary outcome to evaluate their predictive power of economic downturns in the US, including the S&P 500, US recessions and Bitcoin. This was achieved by answering the question: “To What Extent Can Risk Indicators Identify a Coming Financial Crisis?”. We found that the most effective predictions came from the San Francisco Fed News Sentiment Index, the Chicago Board of Exchange Volatility Index, and the Consumer Confidence Index. These variables showed to be... (More)
There are several economic variables used by investors to assess the risk of financial downturns. In this paper, we test twelve variables, divided into three categories: macroeconomic-, financial risk-, and sentiment indicators, in a logistic regression model, on in-sample data, with a binary outcome to evaluate their predictive power of economic downturns in the US, including the S&P 500, US recessions and Bitcoin. This was achieved by answering the question: “To What Extent Can Risk Indicators Identify a Coming Financial Crisis?”. We found that the most effective predictions came from the San Francisco Fed News Sentiment Index, the Chicago Board of Exchange Volatility Index, and the Consumer Confidence Index. These variables showed to be good leading indicators in combination for stock market crises and recessions. The variables evaluated on Bitcoin crises had weak predictive power. (Less)
Please use this url to cite or link to this publication:
author
Bernhardsson, Hugo LU and Lantz, Alexander LU
supervisor
organization
course
NEKH02 20232
year
type
M2 - Bachelor Degree
subject
keywords
S&P 500, Recession, Risk, Sentiment, Logit
language
English
id
9147720
date added to LUP
2024-04-16 09:26:08
date last changed
2024-04-16 09:26:08
@misc{9147720,
  abstract     = {{There are several economic variables used by investors to assess the risk of financial downturns. In this paper, we test twelve variables, divided into three categories: macroeconomic-, financial risk-, and sentiment indicators, in a logistic regression model, on in-sample data, with a binary outcome to evaluate their predictive power of economic downturns in the US, including the S&P 500, US recessions and Bitcoin. This was achieved by answering the question: “To What Extent Can Risk Indicators Identify a Coming Financial Crisis?”. We found that the most effective predictions came from the San Francisco Fed News Sentiment Index, the Chicago Board of Exchange Volatility Index, and the Consumer Confidence Index. These variables showed to be good leading indicators in combination for stock market crises and recessions. The variables evaluated on Bitcoin crises had weak predictive power.}},
  author       = {{Bernhardsson, Hugo and Lantz, Alexander}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{To What Extent Can Risk Indicators Identify a Coming Financial Crisis? Evaluating Indicator Performance On Economic Downturns In The US.}},
  year         = {{2024}},
}