Related papers: Financial bubbles: mechanisms and diagnostics
In this paper we explain the wild fluctuations of financial prices from the intrinsic amplifying feedback of speculative supply and demand. Formally, we show that an asset return follows a multiplicative random growth with exogenous input,…
We present a simple agent-based model of a financial system composed of leveraged investors such as banks that invest in stocks and manage their risk using a Value-at-Risk constraint, based on historical observations of asset prices. The…
Financial markets provide a natural quantitative lab for understanding some of the most advanced human behaviours. Among them is the use of mathematical tools known as financial instruments. Besides money, the two most fundamental financial…
This paper highlights the role of risk neutral investors in generating endogenous bubbles in derivatives markets. We find that a market for derivatives, which has all the features of a perfect market except completeness and has some risk…
Complex systems are usually non-stationary and their dynamics is often dominated by collective effects. Collectivity, defined as coherent motion of the whole system or of some of its parts, manifests itself in the time-dependent structures…
We have analyzed the risks of possible development of bubbles in the Swiss residential real estate market. The data employed in this work has been collected by comparis.ch, and carefully cleaned from duplicate records through a procedure…
The existence of the pricing kernel is shown to imply the existence of an ambient information process that generates market filtration. This information process consists of a signal component concerning the value of the random variable X…
Sharp changes in time series representing market dynamics are studied by means of the self--similar analysis suggested earlier by the authors. These sharp changes are market booms and crashes. Such crises phenomena in markets are analogous…
Identifying unambiguously the presence of a bubble in an asset price remains an unsolved problem in standard econometric and financial economic approaches. A large part of the problem is that the fundamental value of an asset is, in…
Financial markets across all asset classes are known to exhibit trends. These trends have been exploited by traders for decades. Here, we empirically measure when trends revert, based on 30 years of daily futures prices for equity indices,…
We use inelastic hard sphere molecular dynamics simulations and laboratory experiments to study patterns in vertically oscillated granular layers. The simulations and experiments reveal that {\em phase bubbles} spontaneously nucleate in the…
We consider the relationship between economic activity and intervention, including monetary and fiscal policy, using a universal dynamic framework. Central bank policies are designed for growth without excess inflation. However,…
Synchronising a database of stock specific news with 5 years worth of order book data on 300 stocks, we show that abnormal price movements following news releases (exogenous) exhibit markedly different dynamical features from those arising…
Statistics of drawdowns (loss from the last local maximum to the next local minimum) plays an important role in risk assessment of investment strategies. As they incorporate higher ($>$ two) order correlations, they offer a better measure…
We propose that large stock market crashes are analogous to critical points studied in statistical physics with log-periodic correction to scaling. We extend our previous renormalization group model of stock market prices prior to and after…
Financial markets exhibit complex dynamics where localized events trigger ripple effects across entities. Previous event studies, constrained by static single-company analyses and simplistic assumptions, fail to capture these ripple…
Why are human societies unstable? Theories based on the observation of recurring patterns in historical data indicate that economic inequality, as well as social factors are key drivers. So far, models of this phenomenon are more…
Our analysis of financial data, in terms of super-exponential growth, suggests that the seed of the 2002/03 crisis of the Dutch supermarket giant AHOLD was planted in 1996. It became quite visible in 1999 when the post-bubble…
Financial markets are well known for their dramatic dynamics and consequences that affect much of the world's population. Consequently, much research has aimed at understanding, identifying and forecasting crashes and rebounds in financial…
The field of Financial Networks is a paramount example of the novel applications of Statistical Physics that have made possible by the present data revolution. As the total value of the global financial market has vastly outgrown the value…