Fearless versus fearful speculative financial bubbles
AbstractUsing a recently introduced rational expectation model of bubbles, based on the interplay between stochasticity and positive feedbacks of prices on returns and volatility, we develop a new methodology to test how this model classifies nine time series that have been previously considered as bubbles ending in crashes. The model predicts the existence of two anomalous behaviors occurring simultaneously: (i) super-exponential price growth and (ii) volatility growth, that we refer to as the “fearful singular bubble” regime. Out of the nine time series, we find that five pass our tests and can be characterized as “fearful singular bubbles”. The four other cases are the information technology Nasdaq bubble and three bubbles of the Hang Seng index ending in crashes in 1987, 1994 and 1997. According to our analysis, these four bubbles have developed with essentially no significant increase of their volatility. This paper thus proposes that speculative bubbles ending in crashes form two groups hitherto unrecognized, namely those accompanied by increasing volatility (reflecting increasing risk perception) and those without change of volatility (reflecting an absence of risk perception).
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.
Volume (Year): 337 (2004)
Issue (Month): 3 ()
Contact details of provider:
Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/
Rational bubbles; Finite time singularity; Nonlinearity;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- V. I. Yukalov & D. Sornette & E. P. Yukalova, 2007. "Nonlinear Dynamical Model of Regime Switching Between Conventions and Business Cycles," Papers nlin/0701014, arXiv.org.
- D. Sornette & R. Woodard, . "Financial Bubbles, Real Estate bubbles, Derivative Bubbles, and the Financial and Economic Crisis," Working Papers CCSS-09-003, ETH Zurich, Chair of Systems Design.
- Fry, J. M., 2010. "Gaussian and non-Gaussian models for financial bubbles via econophysics," MPRA Paper 27307, University Library of Munich, Germany.
- Sornette, Didier & Woodard, Ryan & Yan, Wanfeng & Zhou, Wei-Xing, 2013. "Clarifications to questions and criticisms on the Johansen–Ledoit–Sornette financial bubble model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(19), pages 4417-4428.
- Yukalov, V.I. & Sornette, D. & Yukalova, E.P., 2009. "Nonlinear dynamical model of regime switching between conventions and business cycles," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 206-230, May.
- Kaizoji, Taisei & Sornette, Didier, 2008.
"Market Bubbles and Chrashes,"
15204, University Library of Munich, Germany.
- John FRY, 2010.
"Bubbles And Crashes In Finance: A Phase Transition From Random To Deterministic Behaviour In Prices,"
Journal of Applied Research in Finance Bi-Annually,
ASERS Publishing, vol. 0(2), pages 131-137, December.
- Fry, J. M., 2010. "Bubbles and crashes in finance: A phase transition from random to deterministic behaviour in prices," MPRA Paper 24778, University Library of Munich, Germany.
- Li Lin & Didier Sornette, 2009. "Diagnostics of Rational Expectation Financial Bubbles with Stochastic Mean-Reverting Termination Times," Papers 0911.1921, arXiv.org.
- D. Sornette, 2008. "Nurturing breakthroughs: lessons from complexity theory," Journal of Economic Interaction and Coordination, Springer, vol. 3(2), pages 165-181, December.
- John M. Fry, 2009.
"Statistical modelling of financial crashes: Rapid growth, illusion of certainty and contagion,"
EERI Research Paper Series
EERI_RP_2009_10, Economics and Econometrics Research Institute (EERI), Brussels.
- Fry, J. M., 2009. "Statistical modelling of financial crashes: Rapid growth, illusion of certainty and contagion," MPRA Paper 16027, University Library of Munich, Germany.
- Didier Sornette & Ryan Woodard, 2009. "Financial Bubbles, Real Estate bubbles, Derivative Bubbles, and the Financial and Economic Crisis," Papers 0905.0220, arXiv.org.
- Fry, J. M., 2009. "Bubbles and contagion in English house prices," MPRA Paper 17687, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.