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Determining bottom price-levels after a speculative peak

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  • B. M. Roehner

Abstract

During a stock market peak the price of a given stock ($ i $) jumps from an initial level $ p_1(i) $ to a peak level $ p_2(i) $ before falling back to a bottom level $ p_3(i) $. The ratios $ A(i) = p_2(i)/p_1(i) $ and $ B(i)= p_3(i)/p_1(i) $ are referred to as the peak- and bottom-amplitude respectively. The paper shows that for a sample of stocks there is a linear relationship between $ A(i) $ and $ B(i) $ of the form: $ B=0.4A+b $. In words, this means that the higher the price of a stock climbs during a bull market the better it resists during the subsequent bear market. That rule, which we call the resilience pattern, also applies to other speculative markets. It provides a useful guiding line for Monte Carlo simulations.

Suggested Citation

  • B. M. Roehner, 2000. "Determining bottom price-levels after a speculative peak," Papers cond-mat/0009222, arXiv.org.
  • Handle: RePEc:arx:papers:cond-mat/0009222
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    File URL: http://arxiv.org/pdf/cond-mat/0009222
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    References listed on IDEAS

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    1. Goldenberg, J & Libai, B & Solomon, S & Jan, N & Stauffer, D, 2000. "Marketing percolation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 284(1), pages 335-347.
    2. B. M. Roehner & D. Sornette, 1998. "The sharp peak-flat trough pattern and critical speculation," Papers cond-mat/9802234, arXiv.org.
    3. V. Plerou & P. Gopikrishnan & L. A. N. Amaral & M. Meyer & H. E. Stanley, 1999. "Scaling of the distribution of price fluctuations of individual companies," Papers cond-mat/9907161, arXiv.org.
    4. Bertrand Roehner & D. Sornette, 1999. "Analysis of the phenomenon of speculative trading in one of its basic manifestations: postage stamp bubbles," Papers cond-mat/9906435, arXiv.org.
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    Cited by:

    1. Zhou, Wei-Xing & Sornette, Didier, 2005. "Testing the stability of the 2000 US stock market “antibubble”," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 348(C), pages 428-452.

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