IDEAS home Printed from
   My bibliography  Save this paper

Identifying financial crises in real time


  • Eder Lucio Fonseca
  • Fernando F. Ferreira
  • Paulsamy Muruganandam
  • Hilda A. Cerdeira


Following the thermodynamic formulation of multifractal measure that was shown to be capable of detecting large fluctuations at an early stage, here we propose a new index which permits us to distinguish events like financial crisis in real time . We calculate the partition function from where we obtain thermodynamic quantities analogous to free energy and specific heat. The index is defined as the normalized energy variation and it can be used to study the behavior of stochastic time series, such as financial market daily data. Famous financial market crashes - Black Thursday (1929), Black Monday (1987) and Subprime crisis (2008) - are identified with clear and robust results. The method is also applied to the market fluctuations of 2011. From these results it appears as if the apparent crisis of 2011 is of a different nature from the other three. We also show that the analysis has forecasting capabilities.

Suggested Citation

  • Eder Lucio Fonseca & Fernando F. Ferreira & Paulsamy Muruganandam & Hilda A. Cerdeira, 2012. "Identifying financial crises in real time," Papers 1204.3136,, revised Nov 2012.
  • Handle: RePEc:arx:papers:1204.3136

    Download full text from publisher

    File URL:
    File Function: Latest version
    Download Restriction: no

    References listed on IDEAS

    1. O. A. Rosso & C. Masoller, 2009. "Detecting and quantifying temporal correlations in stochastic resonance via information theory measures," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 69(1), pages 37-43, May.
    2. Dion Harmon & Marcus A. M. de Aguiar & David D. Chinellato & Dan Braha & Irving R. Epstein & Yaneer Bar-Yam, 2011. "Predicting economic market crises using measures of collective panic," Papers 1102.2620,
    3. Sun, Xia & Chen, Huiping & Yuan, Yongzhuang & Wu, Ziqin, 2001. "Predictability of multifractal analysis of Hang Seng stock index in Hong Kong," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 301(1), pages 473-482.
    4. Domino, Krzysztof, 2011. "The use of the Hurst exponent to predict changes in trends on the Warsaw Stock Exchange," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(1), pages 98-109.
    5. Ivanova, K. & Shirer, H.N. & Clothiaux, E.E. & Kitova, N. & Mikhalev, M.A. & Ackerman, T.P. & Ausloos, M., 2002. "A case study of stratus cloud base height multifractal fluctuations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 308(1), pages 518-532.
    6. Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters,in: THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78 World Scientific Publishing Co. Pte. Ltd..
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1204.3136. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.