Are FINRA Arbitration Filings a Contrary Indicator?

October 22, 2012 12:00pm by Barry Ritholtz

Warning! Finra Arbitration Filings Down, S&P 500 Up

Jack Duval of Original forensic analysis + visualization points out the inverse correlation between FINRA arbitrations and market peaks:

“[Above] is a visualization of annual Finra Arbitration Filings as compared to the S&P 500 annual closing value. Since 1999, there is a significant negative correlation of -0.594 between the two. When arbitration filings have peaked it has been a buy signal, and vice versa.

On the lower pane of the viz, I have plotted the annual Finra Arbitration Filings and colored the marks by the number of claims involving suitability. Clearly, as suitability claims have waned, the market has topped out. (Note the 2012 data is through September.)”

It looks to be a cycle that accidentally relies on mean times between market peaks, and an attenuating number of new arbs filed by disgruntled customers. Regardless, its an unusual indicator and one worth watching.

Jack blogs at ofav.pro/blog/.

Source:
Warning! Finra Arbitration Filings Down, S&P 500 Up
Jack Duval
Original forensic analysis + visualization October 17th, 2012
http://ofav.pro/blog/archives/268

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