Bubbles, Can We Spot Them? Crashes, Can We Predict Them?
AbstractJohansen and Sornette proposes that the crash has fundamentally an endogenous origin and exogenous shocks only serve as triggering factors. This endogenous force is shown in price as power law log-periodicity (PLLP) signature prior to a crash. We estimate the highly nonlinear model developed by them using a hybrid approach which combines scatter search, genetic adaptor and tabu search. The model is applied to two property data sets (Hong Kong Office Price Index and Seoul Hosing Price Index) and one property related stock price (Korea General Construction Stock Price Index). The fitting of the original model to these data sets was unsuccessful, due to the lack of the power law. We hence fit the data using a modified model, and the results are encouraging when crash-date prediction is the aim
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 206.
Date of creation: 11 Nov 2005
Date of revision:
market crash; rational bubble; power law log-periodicity;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-13 (All new papers)
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- Johansen, Anders, 2003. "Characterization of large price variations in financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 157-166.
- Sornette, Didier & Johansen, Anders, 1997. "Large financial crashes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 245(3), pages 411-422.
- Anders Johansen & Didier Sornette, 2000. "The Nasdaq crash of April 2000: Yet another example of log-periodicity in a speculative bubble ending in a crash," Papers cond-mat/0004263, arXiv.org, revised May 2000.
- A. Johansen & D. Sornette, 1998. "Stock market crashes are outliers," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 1(2), pages 141-143, January.
- Sornette, Didier & Johansen, Anders, 1998. "A hierarchical model of financial crashes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 261(3), pages 581-598.
- Johansen, Anders & Sornette, Didier, 2001. "Finite-time singularity in the dynamics of the world population, economic and financial indices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 294(3), pages 465-502.
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