The following is an excerpt from Mark Hulbert | May 20, 2016 | Barrons.com |
What’s the likelihood the stock market this year will experience a 1987- or 1929-style crash?
Evidently quite high, according to billionaire investor Carl Icahn. His net equity position as of the end of March was 150% short—a very aggressive bet that the stock market will plunge.
Nor is Icahn alone. A new study from the National Bureau of Economic Research finds that the average investor believes there to be a greater than one-in-five chance of a huge crash at some point in the next six months. The study, “Crash Beliefs From Investor Surveys,” was conducted by Yale University finance professors William Goetzmann and Robert Shiller (the Nobel laureate) and Dasol Kim, a finance professor at Case Western Reserve University.
Their study is based on surveys conducted periodically since 1989 that asked respondents to assess the risk over the subsequent six months of a 1987- or 1929-magnitude crash. In 1987, of course, the Dow Jones Industrial Average dropped 22.6% in a single session; the 1929 crash involved a 12.8% single-session plunge.
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