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Predicting economic market crises using measures of collective panic

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  • Dion Harmon
  • Marcus A. M. de Aguiar
  • David D. Chinellato
  • Dan Braha
  • Irving R. Epstein
  • Yaneer Bar-Yam
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    Abstract

    Predicting panic is of critical importance in many areas of human and animal behavior, notably in the context of economics. The recent financial crisis is a case in point. Panic may be due to a specific external threat, or self-generated nervousness. Here we show that the recent economic crisis and earlier large single-day panics were preceded by extended periods of high levels of market mimicry --- direct evidence of uncertainty and nervousness, and of the comparatively weak influence of external news. High levels of mimicry can be a quite general indicator of the potential for self-organized crises.

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    File URL: http://arxiv.org/pdf/1102.2620
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1102.2620.

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    Date of creation: Feb 2011
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    Handle: RePEc:arx:papers:1102.2620

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    Web page: http://arxiv.org/

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    Cited by:
    1. Dror Y. Kenett & Matthias Raddant & Thomas Lux & Eshel Ben-Jacob, 2011. "Evolvement of uniformity and volatility in the stressed global financial village," Kiel Working Papers 1739, Kiel Institute for the World Economy.
    2. Eder Lucio Fonseca & Fernando F. Ferreira & Paulsamy Muruganandam & Hilda A. Cerdeira, 2012. "Identifying financial crises in real time," Science & Finance (CFM) working paper archive 1204.3136, Science & Finance, Capital Fund Management, revised Nov 2012.
    3. Dhaene, Jan & Linders, Daniƫl & Schoutens, Wim & Vyncke, David, 2012. "The Herd Behavior Index: A new measure for the implied degree of co-movement in stock markets," Insurance: Mathematics and Economics, Elsevier, vol. 50(3), pages 357-370.
    4. Matija Pi\v{s}korec & Nino Antulov-Fantulin & Petra Kralj Novak & Igor Mozeti\v{c} & Miha Gr\v{c}ar & Irena Vodenska & Tomislav \v{S}muc, 2014. "News Cohesiveness: an Indicator of Systemic Risk in Financial Markets," Science & Finance (CFM) working paper archive 1402.3483, Science & Finance, Capital Fund Management.

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