Predicting Stock Market Crash a case of Karachi Stock Exchange

Abstract

Stock Exchanges world over are primary as well as secondary markets for all sort of securities. The stock markets invariably suffer crashes instigated sometimes by global economic facts and recessions, while sometimes by localised phenomena. The net result is loss of capital and investor confidence leading to economic instability. A mechanism needs to be developed, may it be regulatory or in the form of technical tool, to predict such unprecedented market crashes in order to evade or to minimize its impact. The technology advancement has leed to easy and convenient availability of historical information. This study was focused on selecting reasonable number of market crashes from NYSE and KSE history. This was followed by selecting fundamental and technical variables. The data collection against these variables was restricted to the periods preceding these crashes. Finally analysis was conducted to find the possibility of predicting crashes based on similarities in the patterns. Although the study remained inconclusive, as far as narrowing down on a particular devisable tool to predict the market crash, but the phenomena stands proven. The research has been able to note similarities in the patterns of selected variables. There are many variables whose combinations may prove to be even more conclusive than the combinations selected by the researchers. The study in this domain needs to be taken up as a continual process to reach conclusive tool and regulatory mechanisms in order to safeguard the investor interest.