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Early warning indicator for financial crashes using the log periodic power law

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  • Jeong-Ryeol Kurz-Kim

Abstract

In this article, we apply the Log Periodic Power Law (LPPL), introduced by Johansen et al. (2000), for capturing the recent stock market crash in the German stock index (Deutscher Aktien Index, DAX). The contribution of this article consists not only in describing the historical crash by the LPPL, but also in demonstrating how the LPPL can be used as an early warning indicator for financial crashes.

Suggested Citation

  • Jeong-Ryeol Kurz-Kim, 2012. "Early warning indicator for financial crashes using the log periodic power law," Applied Economics Letters, Taylor & Francis Journals, vol. 19(15), pages 1465-1469, October.
  • Handle: RePEc:taf:apeclt:v:19:y:2012:i:15:p:1465-1469
    DOI: 10.1080/13504851.2011.633885
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    File URL: http://hdl.handle.net/10.1080/13504851.2011.633885
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    References listed on IDEAS

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    1. A. Johansen & D. Sornette, 2002. "Endogenous versus Exogenous Crashes in Financial Markets," Papers cond-mat/0210509, arXiv.org.
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    Cited by:

    1. 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.
    2. Fry, John & Cheah, Eng-Tuck, 2016. "Negative bubbles and shocks in cryptocurrency markets," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 343-352.
    3. Zhi-Qiang Jiang & Gang-Jin Wang & Askery Canabarro & Boris Podobnik & Chi Xie & H. Eugene Stanley & Wei-Xing Zhou, 2016. "Short term prediction of extreme returns based on the recurrence interval analysis," Papers 1610.08230, arXiv.org.
    4. Daniel Traian Pele & Miruna Mazurencu-Marinescu & Peter Nijkamp, 2013. "Herding Behaviour, Bubbles and Log Periodic Power Laws in Illiquid Stock Markets. A Case Study on the Bucharest Stock Exchange," Tinbergen Institute Discussion Papers 13-109/VIII, Tinbergen Institute.

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