Related papers: Critical Market Crashes
We present a self-consistent model for explosive financial bubbles, which combines a mean-reverting volatility process and a stochastic conditional return which reflects nonlinear positive feedbacks and continuous updates of the investors'…
Using a recently introduced rational expectation model of bubbles, based on the interplay between stochasticity and positive feedbacks of prices on returns and volatility, we develop a new methodology to test how this model classifies 9…
We propose that the minimal requirements for a model of stock market price fluctuations should comprise time asymmetry, robustness with respect to connectivity between agents, ``bounded rationality'' and a probabilistic description. We also…
This paper investigates the dynamics of stocks in the S&P500 index for the last 30 years. Using a stochastic geometry technique, we investigate the evolution of the market space and define a new measure for that purpose, which is a robust…
The aim of this study is to investigate quantitatively whether share prices deviated from company fundamentals in the stock market crash of 2008. For this purpose, we use a large database containing the balance sheets and share prices of…
A dynamical model is introduced for the formation of a bullish or bearish trends driving an asset price in a given market. Initially, each agent decides to buy or sell according to its personal opinion, which results from the combination of…
Financial and economic history is strewn with bubbles and crashes, booms and busts, crises and upheavals of all sorts. Understanding the origin of these events is arguably one of the most important problems in economic theory. In this…
Finance is about how the continuous stream of news gets incorporated into prices. But not all news have the same impact. Can one distinguish the effects of the Sept. 11, 2001 attack or of the coup against Gorbachev on Aug., 19, 1991 from…
We review the "critical point" concept for large earthquakes and enlarge it in the framework of so-called "finite-time singularities". The singular behavior associated with accelerated seismic release is shown to result from a positive…
We introduce the concept of "negative bubbles" as the mirror image of standard financial bubbles, in which positive feedback mechanisms may lead to transient accelerating price falls. To model these negative bubbles, we adapt the…
In this paper, making use of recent statistical physics techniques and models, we address the specific role of randomness in financial markets, both at the micro and the macro level. In particular, we review some recent results obtained…
Many studies assume stock prices follow a random process known as geometric Brownian motion. Although approximately correct, this model fails to explain the frequent occurrence of extreme price movements, such as stock market crashes. Using…
We clarify the status of log-periodicity associated with speculative bubbles preceding financial crashes. In particular, we address Feigenbaum's [2001] criticism and show how it can be rebuked. Feigenbaum's main result is as follows: ``the…
Drawdowns are essential aspects of risk assessment in investment management. They offer a more natural measure of real market risks than the variance or other cumulants of daily (or some other fixed time scale) distributions of returns.…
In this short note we discuss recent attempts to describe pre-crash market dynamics with analogies from theory of critical phenomena.
We define a financial bubble as a period of unsustainable growth, when the price of an asset increases ever more quickly, in a series of accelerating phases of corrections and rebounds. More technically, during a bubble phase, the price…
Stock markets are complex systems exhibiting collective phenomena and particular features such as synchronization, fluctuations distributed as power-laws, non-random structures and similarity to neural networks. Such specific properties…
The self-similar analysis of time series, suggested earlier by the authors, is applied to the description of market crises. The main attention is payed to the October 1929, 1987 and 1997 stock market crises, which can be successfully…
We study how the phenomenon of contagion can take place in the network of the world's stock exchanges due to the behavioral trait "blindeness to small changes". On large scale individual, the delay in the collective response may…
In this paper, we present the possibility of using the Ising like models to explain by Statistical Physics means the connection between the financial discontinuities (herd behavior, bubbles, crashes) and "critical points" in physical of…