FINANCIAL "ANTI-BUBBLES": LOG-PERIODICITY IN GOLD AND NIKKEI COLLAPSES

A. Johansen and D. Sornette ()
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A. Johansen: Institute of Geophysics and Planetary Physics, University of California, Los Angeles, California 90095, USA
D. Sornette: Institute of Geophysics and Planetary Physics, University of California, Los Angeles, California 90095, USA;

International Journal of Modern Physics C (IJMPC), 1999, vol. 10, issue 04, 563-575

Abstract: We propose that the herding behavior of traders leads not only to speculative bubbles with accelerating over-valuations of financial markets possibly followed by crashes, but also to "anti-bubbles" with decelerating market devaluations following all-time highs. For this, we propose a simple market dynamics model in which the demand decreases slowly with barriers that progressively quench in, leading to a power law decay of the market price characterized by decelerating log-periodic oscillations. We document this behavior of the Japanese Nikkei stock index from 1990 to present and of the gold future prices after 1980, both after their all-time highs. We perform simultaneously parametric and nonparametric analyses that are fully consistent with each other. We extend the parametric approach to the next order of perturbation, comparing the log-periodic fits with one, two and three log-frequencies, the latter providing a prediction for the general trend in the coming years. The nonparametric power spectrum analysis shows the existence of log-periodicity with high statistical significance, with a preferred scale ratio ofλ≈3.5for the Nikkei index andλ≈1.9for the Gold future prices, comparable to the values obtained for speculative bubbles leading to crashes.

Keywords: Criticality; Stock market; Crashes; Scale invariance; Log-Periodicity; Log-Periodic oscillations; Bubbles; Gold; Nikkei; Herding behavior; 01.75+m; 02.50-r; 89.90+n (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (18)

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DOI: 10.1142/S0129183199000437

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