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Two classes of speculative peaks

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  • Roehner, Bertrand M.

Abstract

Speculation not only occurs in financial markets but also in numerous other markets, e.g. commodities, real estate, collectibles, and so on. Such speculative movements result in price peaks which share many common characteristics: same order of magnitude of duration with respect to amplitude, same shape (the so-called sharp-peak pattern). Such similarities suggest (at least as a first approximation) a common speculative behavior. However, a closer examination shows that in fact there are (at least) two distinct classes of speculative peaks. For the first, referred to as class U, (i) the amplitude of the peak is negatively correlated with the price at the start of the peak (ii) the ensemble coefficient of variation exhibits a trough. Opposite results are observed for the second class that we refer to as class S. Once these empirical observations have been made we try to understand how they should be interpreted. First, we show that the two properties are in fact related in the sense that the second is a consequence of the first. Secondly, by listing a number of cases belonging to each class we observe that the markets in the S-class offer collection of items from which investors can select those they prefer. On the contrary, U-markets consist of undifferentiated products for which a selection cannot be made in the same way. All prices considered in the paper are real (i.e., deflated) prices.

Suggested Citation

  • Roehner, Bertrand M., 2001. "Two classes of speculative peaks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 71-83.
    • Handle: RePEc:eee:phsmap:v:299:y:2001:i:1:p:71-83
    DOI: 10.1016/S0378-4371(01)00283-7
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    References listed on IDEAS

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    1. B. M. Roehner & D. Sornette, 1998. "The sharp peak-flat trough pattern and critical speculation," Papers cond-mat/9802234, arXiv.org.
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