Abstract:

The concept of a price bubble in the financial market is rather complex and contains many nuances. Measuring of price bubbles and identification of market tops is very sophisticated activity even for professional portfolio managers. Methodology of measuring bubbles contains plenty of various indicators, ratios and statistical models, but nonetheless it is still difficult to forecast timing of equity market top. In this work, we review and classify the definition of a financial market bubble and research its nature via specific financial metrics. Valuation metrics show that at the start of US recession equity markets are not extremely overvalued, that is why according to our research and calculations price bubbles usually start deflating before a recession. During this research we found that yield curve could be a useful methodological support tool for US equity market bubbles identification.