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Empirical and Theoretical Status of Discrete Scale Invariance in Financial Crashes

Author

Listed:
  • Anders Johansen

    (UCLA)

  • Didier Sornette

    (UCLA & CNRS FRANCE)

  • Olivier Ledoit

    (Anderson Graduate School of Management)

Abstract

We present a synthesis of all the available empirical evidence in the light of recent theoretical developments for the existence of characteristic log-periodic signatures of growing bubbles in a variety of markets including 8 unrelated crashes from 1929 to 1998 on stock markets as diverse as the US, Hong-Kong or the Russian market and on currencies. To our knowledge, no major financial crash preceded by an extended bubble has occurred in the past 2 decades without exhibiting a similar log-periodic signature

Suggested Citation

  • Anders Johansen & Didier Sornette & Olivier Ledoit, 1999. "Empirical and Theoretical Status of Discrete Scale Invariance in Financial Crashes," Finance 9903006, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:9903006
    Note: Type of Document - postscript; prepared on Latex; pages: 20 ; figures: 11 fugures included. Submitted to Journal of Risk
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    References listed on IDEAS

    as
    1. Kirill Ilinski, 1999. "Critical Crashes?," Papers cond-mat/9903142, arXiv.org.
    2. S. Gluzman & V. I. Yukalov, 1997. "Renormalization Group Analysis of October Market Crashes," Papers cond-mat/9710336, arXiv.org, revised Apr 1998.
    3. A. Johansen & D. Sornette, 1998. "Stock market crashes are outliers," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 1(2), pages 141-143, January.
    4. Blanchard, Olivier Jean, 1979. "Speculative bubbles, crashes and rational expectations," Economics Letters, Elsevier, vol. 3(4), pages 387-389.
    5. Laurent Laloux & Marc Potters & Rama Cont & Jean-Pierre Aguilar & Jean-Philippe Bouchaud, 1998. "Are Financial Crashes Predictable?," Papers cond-mat/9804111, arXiv.org.
    6. Sornette, Didier & Johansen, Anders, 1997. "Large financial crashes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 245(3), pages 411-422.
    7. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
    8. 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.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    bubble crash log-periodic Nikkei prediction acceleration critical;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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