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Bubble, critical zone and the crash of Royal Ahold

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  • Broekstra, Gerrit
  • Sornette, Didier
  • Zhou, Wei-Xing

Abstract

We find that the seed of the 2002/03 crisis of the Dutch supermarket giant AHOLD was planted in 1996. We have adapted Weidlich's theory of opinion formation to describe the formation of buy or sell decisions among investors, based on a competition between the mechanisms of herding and of personal opinion opposing the herd. Using our identification of a “critical zone” starting in mid-1997 describing the maturation of a systemic instability forewarning of an inevitable crash fueled by raising expectations of investors to maintain strong herding pressures, our study opens the possibility of developing early warning signals but also suggests to top management ways of dealing with the coming crisis.

Suggested Citation

  • Broekstra, Gerrit & Sornette, Didier & Zhou, Wei-Xing, 2005. "Bubble, critical zone and the crash of Royal Ahold," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 346(3), pages 529-560.
    • Handle: RePEc:eee:phsmap:v:346:y:2005:i:3:p:529-560
    DOI: 10.1016/j.physa.2004.08.021
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    References listed on IDEAS

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    1. Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272, Decembrie.
    2. Levy, Haim & Levy, Moshe & Solomon, Sorin, 2000. "Microscopic Simulation of Financial Markets," Elsevier Monographs, Elsevier, edition 1, number 9780124458901.
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    Cited by:

    1. Zhou, Wei-Xing & Sornette, Didier, 2008. "Analysis of the real estate market in Las Vegas: Bubble, seasonal patterns, and prediction of the CSW indices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(1), pages 243-260.
    2. 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.
    3. Xing, Dun-Zhong & Li, Hai-Feng & Li, Jiang-Cheng & Long, Chao, 2021. "Forecasting price of financial market crash via a new nonlinear potential GARCH model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 566(C).
    4. 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.
    5. Phillips, Emir & Desmoulins-Lebeault, Francois, 2018. "An FSB board member can better align corporate governance with SIFI sustainability," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 112-120.

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