Related papers: Fearless versus Fearful Speculative Financial Bubb…
The Sornette-Ide differential equation of herding and rational trader behaviour together with very small random noise is shown to lead to crashes or bubbles where the price change goes to infinity after an unpredictable time. About 100 time…
A microscopic model of financial markets is considered, consisting of many interacting agents (spins) with global coupling and discrete-time thermal bath dynamics, similar to random Ising systems. The interactions between agents change…
We highlight a very simple statistical tool for the analysis of financial bubbles, which has already been studied in [1]. We provide extensive empirical tests of this statistical tool and investigate analytically its link with stocks…
We construct a statistical indicator for the detection of short-term asset price bubbles based on the information content of bid and ask market quotes for plain vanilla put and call options. Our construction makes use of the martingale…
We study how experience with asset price bubbles changes the trading strategies of reinforcement learning (RL) traders and ask whether the change in trading strategies helps to prevent future bubbles. We train the RL traders in a…
This paper investigates the structural dynamics of stock market volatility through the Financial Chaos Index, a tensor- and eigenvalue-based measure designed to capture realized volatility via mutual fluctuations among asset prices.…
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…
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…
We tested 45 indices and common stocks traded in the South African stock market for the possible existence of a bubble over the period from Jan. 2003 to May 2006. A bubble is defined by a faster-than-exponential acceleration with…
We study asset price bubbles in market models with proportional transaction costs $\lambda\in (0,1)$ and finite time horizon $T$ in the setting of [49]. By following [28], we define the fundamental value $F$ of a risky asset $S$ as the…
In retrospect, the experimental findings on competitive market behavior called for a revival of the old, classical, view of competition as a collective higgling and bargaining process (as opposed to price-taking behaviors) founded on…
We propose a continuous-time model of trading with heterogeneous beliefs. Risk-neutral agents face quadratic costs-of-carry on positions and thus their marginal valuations decrease with the size of their position, as it would be the case…
This paper develops a two-step estimation methodology, which allows us to apply catastrophe theory to stock market returns with time-varying volatility and model stock market crashes. Utilizing high frequency data, we estimate the daily…
"Rational bubble", as introduced by the famous paper on money by Samuelson (1958), means speculation backed by nothing. The large subsequent rational bubble literature has identified attaching bubbles to dividend-paying assets in a natural…
We introduce a mathematical criterion defining the bubbles or the crashes in financial market price fluctuations by considering exponential fitting of the given data. By applying this criterion we can automatically extract the periods in…
This paper proposes a theory of stock market predictability patterns based on a model of heterogeneous beliefs. In a discrete finite time framework, some agents receive news about an asset's fundamental value through a noisy signal. The…
Financial volatility obeys two fascinating empirical regularities that apply to various assets, on various markets, and on various time scales: it is fat-tailed (more precisely power-law distributed) and it tends to be clustered in time.…
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…
A deterministic trading strategy by a representative investor on a single market asset, which generates complex and realistic returns with its first four moments similar to the empirical values of European stock indices, is used to simulate…
We show that infinite divisibility of a trading commodity leads to a self-sustained price bubble when traders use adaptive investment strategies. The adaptive strategy can be viewed as a psychological response of a trader to the situation…