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Is It Possible to Predict Crash?

Author

Listed:
  • Paweł Oświęcimka
  • Stanisław Drożdż
  • Jarosław Kwapień
  • Rafał Rak

Abstract

This article presents one of the most promising methods to predict the sudden changes in the stock market, namely the theory of log-periodic oscillations. The authors, in addition to the above theoretical basis method referring to the theory of complex systems and critical phenomena, show empirical evidence of the effectiveness of this approach in predicting both the bust in the stock market, as well as in the resources market. The examples (based on the analysis and forecasts) shown in the research confirm that self-similar log-periodicity with a parameter contraction lambda ~ 2 is able to properly describe the dynamics of the stock exchange on different time scales.What ismore, the prediction, indicating a reversal of the uptrend in the stock market in September and October in 2009, was shown.

Suggested Citation

  • Paweł Oświęcimka & Stanisław Drożdż & Jarosław Kwapień & Rafał Rak, 2011. "Is It Possible to Predict Crash?," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 25.
    • Handle: RePEc:eko:ekoeko:25_163
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    File URL: http://ekonomia.wne.uw.edu.pl/ekonomia/getFile/717
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    References listed on IDEAS

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    1. M. Potters & J. P. Bouchaud & L. Laloux, 2005. "Financial Applications of Random Matrix Theory: Old Laces and New Pieces," Papers physics/0507111, arXiv.org.
    2. Stanislaw Drozdz & Jaroslaw Kwapien & Pawel Oswiecimka & Josef Speth, 2008. "Current log-periodic view on future world market development," Papers 0802.4043, arXiv.org, revised Jun 2008.
    3. A. Z. Górski & S. Drożdż & J. Kwapień, 2008. "Scale free effects in world currency exchange network," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 66(1), pages 91-96, November.
    4. Oświe¸cimka, P. & Kwapień, J. & Drożdż, S., 2005. "Multifractality in the stock market: price increments versus waiting times," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 347(C), pages 626-638.
    5. Drożdż, S. & Grümmer, F. & Ruf, F. & Speth, J., 2003. "Log-periodic self-similarity: an emerging financial law?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 174-182.
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