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Stock market crashes are outliers

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  • A. Johansen
  • D. Sornette

Abstract

We call attention against what seems to a widely held misconception according to which large crashes are the largest events of distributions of price variations with fat tails. We demonstrate on the Dow Jones Industrial index that with high probability the three largest crashes in this century are outliers. This result supports suggestion that large crashes result from specific amplification processes that might lead to observable pre-cursory signatures.

Suggested Citation

  • A. Johansen & D. Sornette, 1997. "Stock market crashes are outliers," Papers cond-mat/9712005, arXiv.org, revised Dec 1997.
    • Handle: RePEc:arx:papers:cond-mat/9712005
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    File URL: http://arxiv.org/pdf/cond-mat/9712005
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    1. Jean-Philippe Bouchaud & Didier Sornette & Marc Potters, 1997. "Option pricing in the presence of extreme fluctuations," Science & Finance (CFM) working paper archive 500038, Science & Finance, Capital Fund Management.
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