Bubbles And Anti-Bubbles In Latin-American, Asian And Western Stock Markets: An Empirical Study

Twenty-one significant bubbles followed by large crashes or severe corrections in Latin-American and Asian stock markets are identified. We find that, with very few exceptions, these speculative bubbles can be quantitatively described by a rational expectation model of bubbles predicting a specific power law acceleration as well as so-called log-periodic geometric patterns. This model considerably extends the applicability of the rational expectation model of bubbles followed by crashes or severe corrections previously proposed for the major financial markets in the world, i.e. the USA and the foreign exchange markets. A comparison of the model predictions using the price and the logarithm of the price, respectively, furthermore indicates according to our model that such large downward movements in the markets are nothing but depletions of the preceding bubble thus bringing the market back towards equilibrium. In addition, a set of secondary stock markets are also shown to exhibit well-correlated "anti-bubbles" triggered by a rash of crises on emerging markets in early 1994. This suggests that smaller stock markets can weakly synchronize not only because of the over-arching influence of the US market, but also independent of the US market due to external factors such as the Asian crisis of 1994.