Related papers: Fearless versus Fearful Speculative Financial Bubb…
The value of stocks, indices and other assets, are examples of stochastic processes with unpredictable dynamics. In this paper, we discuss asymmetries in short term price movements that can not be associated with a long term positive trend.…
We present a heuristic argument for the propensity of Topological Data Analysis (TDA) to detect early warning signals of critical transitions in financial time series. Our argument is based on the Log-Periodic Power Law Singularity (LPPLS)…
This paper develops a dynamic equilibrium model where agents exhibit a strong form of belief heterogeneity: they disagree about zero probability events. It is shown that, somewhat surprisingly, equilibrium exists in this setting, and that…
In this study, we investigate asset price bubbles in a discrete-time, discrete-state market under model uncertainty and short sales prohibitions. Building on a new fundamental theorem of asset pricing and a superhedging duality in this…
In a general way, stock and bond prices do not display any significant correlation. Yet, if we concentrate our attention on specific episodes marked by a crash followed by a rebound, then we observe that stock prices have a strong…
This note continues investigation of randomness-type properties emerging in idealized financial markets with continuous price processes. It is shown, without making any probabilistic assumptions, that the strong variation exponent of…
We introduce a new definition of speculative bubbles in discrete-time models based on the discounted stock price losing mass at some finite drop-down under an equivalent martingale measure. We provide equivalent probabilistic…
This study presents a three-step machine learning framework to predict bubbles in the S&P 500 stock market by combining financial news sentiment with macroeconomic indicators. Building on traditional econometric approaches, the proposed…
A simple spin model is studied, motivated by the dynamics of traders in a market where expectation bubbles and crashes occur. The dynamics is governed by interactions which are frustrated across different scales: While ferromagnetic…
The price-bubble and crash process formation is theoretically investigated in a two-asset equilibrium model. Sufficient and necessary conditions are derived for the existence of average equilibrium price dynamics of different agent-based…
We investigate large changes, bursts, of the continuous stochastic signals, when the exponent of multiplicativity is higher than one. Earlier we have proposed a general nonlinear stochastic model which can be transformed into Bessel process…
We examine how the most prevalent stochastic properties of key financial time series have been affected during the recent financial crises. In particular we focus on changes associated with the remarkable economic events of the last two…
We document and analyze the empirical facts concerning one of the clearest evidence of speculation in financial trading as observed in the postage collection stamp market. We unravel some of the mechanisms of speculative behavior which…
The Nasdaq Composite fell another $\approx 10 %$ on Friday the 14'th of April 2000 signaling the end of a remarkable speculative high-tech bubble starting in spring 1997. The closing of the Nasdaq Composite at 3321 corresponds to a total…
We study and generalize in various ways the model of rational expectation (RE) bubbles introduced by Blanchard and Watson in the economic literature. First, bubbles are argued to be the equivalent of Goldstone modes of the fundamental…
This paper discusses a novel explanation for asymmetric volatility based on the anchoring behavioral pattern. Anchoring as a heuristic bias causes investors focusing on recent price changes and price levels, which two lead to a belief in…
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.…
Financial time series exhibit a number of interesting properties that are difficult to explain with simple models. These properties include fat-tails in the distribution of price fluctuations (or returns) that are slowly removed at longer…
A general theory of innovation and progress in human society is outlined, based on the combat between two opposite forces (conservatism/inertia and speculative herding "bubble" behavior). We contend that human affairs are characterized by…
There are two major streams of literature on the modeling of financial bubbles: the strict local martingale framework and the Johansen-Ledoit-Sornette (JLS) financial bubble model. Based on a class of models that embeds the JLS model and…