Everything You Always Wanted to Know about Log Periodic Power Laws for Bubble Modelling but Were Afraid to Ask

Dean Fantazzini and Petr Geraskin

MPRA Paper from University Library of Munich, Germany

Abstract: Sornette et al. (1996), Sornette and Johansen (1997), Johansen et al. (2000) and Sornette (2003a) proposed that, prior to crashes, the mean function of a stock index price time series is characterized by a power law decorated with log-periodic oscillations, leading to a critical point that describes the beginning of the market crash. This paper reviews the original Log-Periodic Power Law (LPPL) model for financial bubble modelling, and discusses early criticism and recent generalizations proposed to answer these remarks. We show how to fit these models with alternative methodologies, together with diagnostic tests and graphical tools to diagnose financial bubbles in the making in real time. An application of this methodology to the Gold bubble which busted in December 2009 is then presented.

Keywords: Log-periodic models; LPPL; Crash; Bubble; Anti-Bubble; GARCH; Forecasting; Gold; Bubble Burst; Bubble modelling; Bubble forecasting (search for similar items in EconPapers)
JEL-codes: C22 C32 C51 C53 G17 (search for similar items in EconPapers)
Date: 2011-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Journal Article: Everything you always wanted to know about log-periodic power laws for bubble modeling but were afraid to ask (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:47869

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