Risk Measure and Early-Warning System of China's Stock Market Based on Price-Earnings Ratio and Price-to-Book Ratio

Table 8

Analysis and summaries of the risk warning of SSE Composite Index.

	Risk accumulation = 0	Little risk in big falls of index and thus little risk and high probability of profiting in investment.
VaR no warning	Risk accumulation ≥ 1	Investment risk exists. The higher the risk accumulation is, the more risk exists in investment. Long-term investors should adjust their investments according to the risk accumulation.
VaR warning	Risk accumulation = 0	SSE Composite Index rises 5 times and falls 11 times among 16 VaR risk warnings. Probabilistically, short-term investors should leave and wait temporarily, while long-term investors can still invest as the market is in a low-risk position.
VaR warning	Risk accumulation ≥ 1	Index falls sharply 13 times among 17 VaR risk warnings. Probabilistically, short-term investors should leave and wait, while long-term investors should continue reducing their investments and ultimately get completely short positions with the increase of cumulative risks