There are at least five issues regarding stock market crashes:

1. When is there a bubble in a financial market?

2. Can you exit the bubble at a good price and time?

3. Can you predict large crashes averaging a decline of about 25%?

4. For small -5 to -15% declines that occur for surprise reasons or are expected like Brexit, the Trump election, and the January -February 2016 period following a modest interest rate rise but great fear of many more hikes that did not materialize?

5. How many such declines do individual and institutional investors actually expect of what size and is it more or less than actually occur?We know that periods with high returns start with low price earnings ratios and end with high ratios – one example is 8 to 40 over 20 years.

This talk discusses these questions, covering some of my own research (with Sebastian Lleo and Mikhail Zhitlukhin), the the bubble determination ideas from Bob Jarrow, Philip Protter and others, and the behaviour of individuals regarding crash fear from William Goetzmann and Robert Shiller. We cover four big crash measures:

1. The BSEYD that is high bond interest rates relative to earnings yield, which I have been using since 1988 in Japan. It has a very good record over time in the US and other countries as well. In particular, it called the Iceland, China and US Crashes in 2006-2009. The US events started on June 14 2007, when the S&P 500 was over 1,500 and in early March 2009 got to 666. Lleo and I compared Shiller’s high PE crash signals with the BSEYD over 60 years in the US. Both models add value but BSEYD is better. The Graham and Dodd idea of using ten year earnings that Shiller has championed makes BSEYD even better.

2. I have also developed a confidential behavorial crash measure based on put versus call prices. When calls exceed as they have six times since 1985 the next quarters S&P 500 is -41.7% adding all six.

3. The third measure is Warren Buffetts’s value of the stock market relative to the economy does not work as presented but modified using ideas similar to those in BSEYD it does.

4. The fourth measure is the value of Sotheby’s stock. In small declines like February 2016, Brexit and the Trump election with whipsawing there are several issues. VIX-SP 500 graphs help in recognizing the turn and I was able to have large gains each time in my futures fund. That

helped me win the 2015 futures contest of the battle of the quants in New York and currently be #1 in the US among futures funds in my category.

One must constantly monitor positions and rely on institutional practices, behavioural biases, calendar anomalies, mispriced options and mean reversion AND, when there is trouble, corrective action. On average the market is efficient but there are advantages that with research and care lead to superior investing over long periods.