Evidence of fueling of the 2000 new economy bubble by foreign capital inflow: implications for the future of the US economy and its stock market

Didier Sornette and Wei-Xing Zhou

Physica A: Statistical Mechanics and its Applications, 2004, vol. 332, issue C, 412-440

Abstract: Previous analyses of a large ensemble of stock markets have demonstrated that a log-periodic power law (LPPL) behavior of the prices constitutes a qualifying signature of speculative bubbles that often land with a crash. We detect such a LPPL signature in the foreign capital inflow during the bubble on the US markets culminating in March 2000. We detect a weak synchronization and lag with the NASDAQ LPPL pattern. We propose to rationalize these observations by the existence of positive feedback loops between market-appreciation/increased-spending/increased-deficit-of-balance-of-payment/larger-foreign-surplus/increased-foreign-capital-inflows and so on. Our analysis suggests that foreign capital inflow has been following rather than causing the bubble.

Keywords: Foreign capital inflow; Speculative bubble; New economy; Dollar depreciation; Depression (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (22)

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Related works:
Working Paper: Evidence of Fueling of the 2000 New Economy Bubble by Foreign Capital Inflow: Implications for the Future of the US Economy and its Stock Market (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:332:y:2004:i:c:p:412-440

DOI: 10.1016/j.physa.2003.10.010

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