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The Nasdaq crash of April 2000: Yet another example of log-periodicity in a speculative bubble ending in a crash

  • Anders Johansen

    (UCLA)

  • Didier Sornette

    (UCLA, Univ. of Nice and CNRS)

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    The Nasdaq Composite fell another $\approx 10 %$ on Friday the 14'th of April 2000 signaling the end of a remarkable speculative high-tech bubble starting in spring 1997. The closing of the Nasdaq Composite at 3321 corresponds to a total loss of over 35% since its all-time high of 5133 on the 10'th of March 2000. Similarities to the speculative bubble preceding the infamous crash of October 1929 are quite striking: the belief in what was coined a ``New Economy'' both in 1929 and presently made share-prices of companies with three digits price-earning ratios soar. Furthermore, we show that the largest draw downs of the Nasdaq are outliers with a confidence level better than 99% and that these two speculative bubbles, as well as others, both nicely fit into the quantitative framework proposed by the authors in a series of recent papers.

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    File URL: http://arxiv.org/pdf/cond-mat/0004263
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    Paper provided by arXiv.org in its series Papers with number cond-mat/0004263.

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    Date of creation: Apr 2000
    Date of revision: May 2000
    Publication status: Published in European Physical Journal B 17, 319-328 (2000).
    Handle: RePEc:arx:papers:cond-mat/0004263
    Contact details of provider: Web page: http://arxiv.org/

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    1. 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.
    2. De Vries, C.G. & Leuven, K.U., 1994. "Stylized Facts of Nominal Exchange Rate Returns," Papers 94-002, Purdue University, Krannert School of Management - Center for International Business Education and Research (CIBER).
    3. D. Sornette, 2000. "Stock Market Speculation: Spontaneous Symmetry Breaking of Economic Valuation," Papers cond-mat/0004001, arXiv.org.
    4. Pagan, Adrian, 1996. "The econometrics of financial markets," Journal of Empirical Finance, Elsevier, vol. 3(1), pages 15-102, May.
    5. Sornette, Didier & Johansen, Anders, 1997. "Large financial crashes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 245(3), pages 411-422.
    6. P. Gopikrishnan & M. Meyer & L.A.N. Amaral & H.E. Stanley, 1998. "Inverse cubic law for the distribution of stock price variations," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 3(2), pages 139-140, July.
    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. Geert Bekaert & Campbell R. Harvey, 1995. "Emerging Equity Market Volatility," NBER Working Papers 5307, National Bureau of Economic Research, Inc.
    9. Anders Johansen & Didier Sornette, 1999. "Critical Crashes," Papers cond-mat/9901035, arXiv.org.
    10. A. Johansen & D. Sornette, 1999. "Financial ``Anti-Bubbles'': Log-Periodicity in Gold and Nikkei collapses," Papers cond-mat/9901268, arXiv.org.
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