Endogenous versus exogenous shocks in systems with memory

D Sornette and A Helmstetter

Physica A: Statistical Mechanics and its Applications, 2003, vol. 318, issue 3, 577-591

Abstract: Systems with long-range persistence and memory are shown to exhibit different precursory as well as recovery patterns in response to shocks of exogenous versus endogenous origins. By endogenous, we envision either fluctuations resulting from an underlying chaotic dynamics or from a stochastic forcing origin which may be external or be an effective coarse-grained description of the microscopic fluctuations. In this scenario, endogenous shocks result from a kind of constructive interference of accumulated fluctuations whose impacts survive longer than the large shocks themselves. As a consequence, the recovery after an endogenous shock is in general slower at early times and can be at long times either slower or faster than after an exogenous perturbation. This offers the tantalizing possibility of distinguishing between an endogenous versus exogenous cause of a given shock, even when there is no “smoking gun”. This could help in investigating the exogenous versus self-organized origins in problems such as the causes of major biological extinctions, of change of weather regimes and of the climate, in tracing the source of social upheaval and wars, and so on. Sornette et al., Volatility fingerprints of large stocks: endogenous versus exogenous, cond-mat/0204626 has already shown how this concept can be applied concretely to differentiate the effects on financial markets of the 11 September 2001 attack or of the coup against Gorbachev on 19 August 1991 (exogenous) from financial crashes such as October 1987 (endogenous).

Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:318:y:2003:i:3:p:577-591

DOI: 10.1016/S0378-4371(02)01371-7

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