A Tale of Two Indexes Predicting Equity Market Downturns in China

In this paper, Sebastien Lleo and William T. Ziemba investigate whether traditional crash predictors, the price-to-earnings ratio, the Cyclically Adjusted Price-to-Earnings ratio and the Bond-Stock Earnings Yield Differential model, predicts crashes for the Shanghai Stock Exchange Composite Index and the Shenzhen Stock Exchange Composite Index.