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Bubbles, shocks and elementary technical trading strategies

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  • John Fry

Abstract

In this paper we provide a unifying framework for a set of seemingly disparate models for bubbles, shocks and elementary technical trading strategies in financial markets. Markets operate by balancing intrinsic levels of risk and return. This seemingly simple observation is commonly over-looked by academics and practitioners alike. Our model shares its origins in statistical physics with others. However, under our approach, changes in market regime can be explicitly shown to represent a phase transition from random to deterministic behaviour in prices. This structure leads to an improved physical and econometric model. We develop models for bubbles, shocks and elementary technical trading strategies. The list of empirical applications is both interesting and topical and includes real-estate bubbles and the on-going Eurozone crisis. We close by comparing the results of our model with purely qualitative findings from the finance literature. Copyright EDP Sciences, SIF, Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • John Fry, 2014. "Bubbles, shocks and elementary technical trading strategies," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 87(1), pages 1-13, January.
    • Handle: RePEc:spr:eurphb:v:87:y:2014:i:1:p:1-13:10.1140/epjb/e2013-40587-y
    DOI: 10.1140/epjb/e2013-40587-y
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    Cited by:

    1. Cheah, Eng-Tuck & Fry, John, 2015. "Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin," Economics Letters, Elsevier, vol. 130(C), pages 32-36.

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    More about this item

    Keywords

    Statistical and Nonlinear Physics;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises

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