Bubbles and Anti-Bubbles in Latin-American, Asian and Western Stock Markets: An Empirical Study

Johansen, Anders; Sornette, Didier

doi:10.1142/s0219024901001218

Cited by 85 publications

(94 citation statements)

References 49 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Following the same fitting procedure as in Sec. As a second illustrative example, let us take the phases corresponding to the asymptotic dependence of the phases of the Weierstrass function given by (13), that is, ψ n = ωn ln(ωn). With N = 6, we follow the same procedure as in Sec.…”

Section: And Eq (16)mentioning

confidence: 99%

Renormalization group analysis of the 2000–2002 anti-bubble in the US S&P500 index: explanation of the hierarchy of five crashes and prediction

Zhou

Sornette

2003

Physica A: Statistical Mechanics and its Applications

Self Cite

View full text Add to dashboard Cite

We propose a straightforward extension of our previously proposed log-periodic power law model of the "anti-bubble" regime of the USA market since the summer of 2000, in terms of the renormalization group framework to model critical points. Using a previous work by Gluzman and Sornette (2002) on the classification of the class of Weierstrass-like functions, we show that the five crashes that occurred since August 2000 can be accurately modelled by this approach, in a fully consistent way with no additional parameters. Our theory suggests an overall consistent organization of the investors forming a collective network which interact to form the pessimistic bearish "anti-bubble" regime with intermittent acceleration of the positive feedbacks of pessimistic sentiment leading to these crashes. We develop retrospective predictions, that confirm the existence of significant arbitrage opportunities for a trader using our model. Finally, we offer a prediction for the unknown future of the US S&P500 index extending over 2003 and 2004, that refines the previous prediction of Sornette and Zhou (2002).

show abstract

Section: And Eq (16)mentioning

confidence: 99%

Renormalization group analysis of the 2000–2002 anti-bubble in the US S&P500 index: explanation of the hierarchy of five crashes and prediction

Zhou

Sornette

2003

Physica A: Statistical Mechanics and its Applications

Self Cite

View full text Add to dashboard Cite

show abstract

“…This business had subsequently been extended to`anti-bubbles', mirror-imaged log-periodic downward movements which should give rise to a recovery at criticality. Evidence for this scenario has rst been claimed for the Nikkei in 1999 (Johansen and Sornette, 1999a) and had also been extended to various other markets shortly thereafter (Johansen and Sornette, 2001b). Somewhat unfortunately, the details of the estimation algorithm for the many parameters of the highly nonlinear logperiodic equation have not been spelled out exactly in all this literature and an attempt at replicating some of the published estimates reported that the available information was not sucient to arrive at anything close to the authors' original results (Feigenbaum, 2001a, b).…”

Section: Problematic Prophecies: Predicting Crashes and Recoveriesmentioning

confidence: 91%

Applications of Statistical Physics in Finance and Economics

Lux

2009

Handbook of Research on Complexity

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Applications of Statistical Physics in Finance and Economics Thomas LuxAbstract: This chapter reviews recent research adopting methods from statistical physics in theoretical or empirical work in economics and finance. The bulk of what has recently become known as 'econophysics' in broader circles draws its motivation from observed scaling laws in financial markets and the abundance of data available from the economy's financial sphere. Sec. 2 of this review presents the robust power laws encountered in financial economics and discusses potential explanations for scaling in finance derived from models of stochastic interactions of traders. Sec. 3 provides an overview over other applications of statistical physics methodology in finance and attempts to evaluate the impact they have had so far on financial economics. With the following section, the review turns to recent work on the emergence of wealth and income heterogeneity and the recent inception of new strands of research on this topic, both within econophysics and the neoclassical economics tradition. Sec. 5 reviews the new stylized facts that have been identified in cross-sectional data of firm characteristics and agent-based approaches to industrial organization and macroeconomic dynamics that have been motivated by these findings. We conclude with an assessment of the major methodological contributions of this new strand of research.Keywords: stylized facts, power laws, agent-based models, econophysics JEL classification: C10, C51, G12 Abstract: This chapter reviews recent research adopting methods from statistical physics in theoretical or empirical work in economics and nance. The bulk of what has recently become known as`econophysics' in broader circles draws its motivation from observed scaling laws in nancial markets and the abundance of data available from the economy's nancial sphere. Sec. 2 of this review presents the robust power laws encountered in nancial economics and discusses potential explanations for scaling in nance derived from models of stochastic interactions of traders. Sec. 3 provides an overview over other applications of statistical physics methodology in nance and attempts to evaluate the impact they have had so far on nancial economics. With the following section, the review turns to recent work on the emergence of wealth and income heterogeneity and the recent inception of new strands of research on this topic, both within econophysics and the...

show abstract

“…One of the most prominent example is found in the market appreciations observes in many of the world markets prior to the world market crash in Oct. 1987 [4]. Similar intermittent coordination of bubbles have been detected among the significant bubbles followed by large crashes or severe corrections in Latin-American and Asian stock markets [22]. It is therefore desirable to generalize the one-dimensional RE bubble model (1) to the multi-dimensional case.…”

Section: Generalization To Several Coupled Assetsmentioning

confidence: 94%

From rational bubbles to crashes

Sornette

Malevergne

2001

Physica A: Statistical Mechanics and its Applications

View full text Add to dashboard Cite

We study and generalize in various ways the model of rational expectation (RE) bubbles introduced by Blanchard and Watson in the economic literature. Bubbles are argued to be the equivalent of Goldstone modes of the fundamental rational pricing equation, associated with the symmetry-breaking introduced by non-vanishing dividends. Generalizing bubbles in terms of multiplicative stochastic maps, we summarize the result of Lux and Sornette that the no-arbitrage condition imposes that the tail of the return distribution is hyperbolic with an exponent µ < 1. We then outline the main results of Malevergne and Sornette, who extend the RE bubble model to arbitrary dimensions d: a number d of market time series are made linearly interdependent via d × d stochastic coupling coefficients. We derive the no-arbitrage condition in this context and, with the renewal theory for products of random matrices applied to stochastic recurrence equations, we extend the theorem of Lux and Sornette to demonstrate that the tails of the unconditional distributions associated with such d-dimensional bubble processes follow power laws, with the same asymptotic tail exponent µ < 1 for all assets. The distribution of price differences and of returns is dominated by the same power-law over an extended range of large returns. Although power-law tails are a pervasive feature of empirical data, the numerical value µ < 1 is in disagreement with the usual empirical estimates µ ≈ 3. We then discuss two extensions (the crash hazard rate model and the non-stationary growth rate model) of the RE bubble model that provide two ways of reconciliation with the stylized facts of financial data.

show abstract

Bubbles and Anti-Bubbles in Latin-American, Asian and Western Stock Markets: An Empirical Study

Cited by 85 publications

References 49 publications

Renormalization group analysis of the 2000–2002 anti-bubble in the US S&P500 index: explanation of the hierarchy of five crashes and prediction

Renormalization group analysis of the 2000–2002 anti-bubble in the US S&P500 index: explanation of the hierarchy of five crashes and prediction

Applications of Statistical Physics in Finance and Economics

From rational bubbles to crashes

Contact Info

Product

Resources

About