Related papers: Crashes as Critical Points
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…
The study of the critical dynamics in complex systems is always interesting yet challenging. Here, we choose financial market as an example of a complex system, and do a comparative analyses of two stock markets - the S&P 500 (USA) and…
Asset price bubbles are situations where asset prices exceed the fundamental values defined by the present value of dividends. This paper presents a conceptually new perspective: the necessity of bubbles. We establish the Bubble Necessity…
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…
Although behavioral economics has demonstrated that there are many situations where rational choice is a poor empirical model, it has so far failed to provide quantitative models of economic problems such as price formation. We make a step…
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…
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…
We argue that the present crisis and stalling economy continuing since 2007 are rooted in the delusionary belief in policies based on a "perpetual money machine" type of thinking. We document strong evidence that, since the early 1980s,…
Positive feedback trading, which buys when prices rise and sells when prices fall, has long been criticized for being destabilizing as it moves prices away from the fundamentals. Motivated by the relationship between positive feedback…
Many complex systems exhibit extreme events far more often than expected for a normal distribution. This work examines how self-similar bursts of activity across several orders of magnitude can emerge from first principles in systems that…
A hypothesis that the financial log-periodicity, cascading self-similarity through various time scales, carries signatures of a law is pursued. It is shown that the most significant historical financial events can be classified amazingly…
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…
This paper provides robust, new evidence on the causal drivers of market troughs. We demonstrate that conclusions about these triggers are critically sensitive to model specification, moving beyond restrictive linear models with a flexible…
We develop a model for point processes on the real line, where the intensity can be locally unbounded without inducing an explosion. In contrast to an orderly point process, for which the probability of observing more than one event over a…
We discuss - in what is intended to be a pedagogical fashion - a criterion, which is a lower bound on a certain ratio, for when a stock (or a similar instrument) is not a good investment in the long term, which can happen even if the…
The collapse of interdependent networks, as well as similar avalanche phenomena, is driven by cascading failures. At the critical point, the cascade begins as a critical branching process, where each failing node (element) triggers, on…
Neural avalanches are collective firings of neurons that exhibit emergent scale-free behavior. Understanding the nature and distribution of these avalanches is an important element in understanding how the brain functions. We study a model…
A model of an evolving network of interacting molecular species is shown to exhibit repeated rounds of crashes in which several species get rapidly depopulated, followed by recoveries. The network inevitably self-organizes into an…
In statistical and nonlinear systems, two qualitatively distinct parameter regions are typically identified: the regular region, characterized by smooth behavior of key quantities, and the critical region, where these quantities exhibit…
The Chinese stock market experienced an abrupt crash in 2015, and over one-third of its market value evaporated. Given its associations with fear and the fine resolution with respect to frequency, the illiquidity of stocks may offer a…