Related papers: Critical Market Crashes
Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes…
We call attention against what seems to a widely held misconception according to which large crashes are the largest events of distributions of price variations with fat tails. We demonstrate on the Dow Jones Industrial index that with high…
We study a rational expectation model of bubbles and crashes. The model has two components : (1) our key assumption is that a crash may be caused by local self-reinforcing imitation between noise traders. If the tendency for noise traders…
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…
Crashes have fascinated and baffled many canny observers of financial markets. In the strict orthodoxy of the efficient market theory, crashes must be due to sudden changes of the fundamental valuation of assets. However, detailed empirical…
We argue that the word ``critical'' in the title is not purely literary. Based on our and other previous work on nonlinear complex dynamical systems, we summarize present evidence, on the Oct. 1929, Oct. 1987, Oct. 1987 Hong-Kong, Aug. 1998…
We present a dynamical theory of asset price bubbles that exhibits the appearance of bubbles and their subsequent crashes. We show that when speculative trends dominate over fundamental beliefs, bubbles form, leading to the growth of asset…
This paper presents an exclusive classification of the largest crashes in Dow Jones Industrial Average (DJIA), SP500 and NASDAQ in the past century. Crashes are objectively defined as the top-rank filtered drawdowns (loss from the last…
Motivated by the hypothesis that financial crashes are macroscopic examples of critical phenomena associated with a discrete scaling symmetry, we reconsider the evidence of log-periodic precursors to financial crashes and test the…
We propose a picture of stock market crashes as critical points in a hierachical system with discrete scaling. The critical exponent is then complex, leading to log-periodic fluctuations in stock market indexes. We present ``experimental''…
We propose a non linear Langevin equation as a model for stock market fluctuations and crashes. This equation is based on an identification of the different processes influencing the demand and supply, and their mathematical transcription.…
Several authors have noticed the signature of log-periodic oscillations prior to large stock market crashes [cond-mat/9509033, cond-mat/9510036, Vandewalle et al 1998]. Unfortunately good fits of the corresponding equation to stock market…
In complex systems like financial market, risk tolerance of individuals is crucial for system resilience.The single-security price limit, designed as risk tolerance to protect investors by avoiding sharp price fluctuation, is blamed for…
We present a synthesis of all the available empirical evidence in the light of recent theoretical developments for the existence of characteristic log-periodic signatures of growing bubbles in a variety of markets including 8 unrelated…
We present an analysis of the time behavior of the $S\&P500$ (Standard and Poors) New York stock exchange index before and after the October 1987 market crash and identify precursory patterns as well as aftershock signatures and…
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…
Prediction of events in financial markets is every investor's dream and, usually, wishful thinking. From a more general, economic and societal viewpoint, the identification of indicators for large events is highly desirable to assess…
We propose that catastrophic events are "outliers" with statistically different properties than the rest of the population and result from mechanisms involving amplifying critical cascades. Applications and the potential for prediction are…
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…
A taxonomy of large financial crashes proposed in the literature locates the burst of speculative bubbles due to endogenous causes in the framework of extreme stock market crashes, defined as falls of market prices that are outlier with…