Why Stock Markets Crash : Critical Events in Complex Financial Systems.

Cover -- Title -- Copyright -- Contents -- Preface to the Princeton Science Library Edition -- Preface to the 2002 Edition -- Chapter 1 FINANCIAL CRASHES: WHAT, HOW, WHY, AND WHEN? -- What Are Crashes, and Why Do We Care? -- The Crash of October 1987 -- Historical Crashes -- The Tulip Mania -- The South Sea Bubble -- The Great Crash of October 1929 -- Extreme Events in Complex Systems -- Is Prediction Possible? A Working Hypothesis -- Chapter 2 FUNDAMENTALS OF FINANCIAL MARKETS -- The Basics -- Price Trajectories -- Return Trajectories -- Return Distributions and Return Correlation -- The Efficient Market Hypothesis and the Random Walk -- The Random Walk -- A Parable: How Information Is Incorporated in Prices, Thus Destroying Potential "Free Lunches" -- Prices Are Unpredictable, or Are They? -- Risk-Return Trade-Off -- Chapter 3 FINANCIAL CRASHES ARE "OUTLIERS" -- What Are "Abnormal" Returns? -- Drawdowns (Runs) -- Definition of Drawdowns -- Drawdowns and the Detection of "Outliers" -- Expected Distribution of "Normal" Drawdowns -- Drawdown Distributions of Stock Market Indices -- The Dow Jones Industrial Average -- The Nasdaq Composite Index -- Further Tests -- The Presence of Outliers Is a General Phenomenon -- Main Stock Market Indices, Currencies, and Gold -- Largest U.S. Companies -- Synthesis -- Symmetry-Breaking on Crash and Rally Days -- Implications for Safety Regulations of Stock Markets -- Chapter 4 POSITIVE FEEDBACKS -- Feedbacks and Self-Organization in Economics -- Hedging Derivatives, Insurance Portfolios, and Rational Panics -- "Herd" Behavior and "Crowd" Effect -- Behavioral Economics -- Herding -- Empirical Evidence of Financial Analysts' Herding -- Forces of Imitation -- It Is Optimal to Imitate When Lacking Information -- Mimetic Contagion and the Urn Models -- Imitation from Evolutionary Psychology -- Rumors.

The Survival of the Fittest Idea -- Gambling Spirits -- "Anti-Imitation" and Self-Organization -- Why It May Pay to Be in the Minority -- El-Farol's Bar Problem -- Minority Games -- Imitation versus Contrarian Behavior -- Cooperative Behaviors Resulting from Imitation -- The Ising Model of Cooperative Behavior -- Complex Evolutionary Adaptive Systems of Boundedly Rational Agents -- Chapter 5 MODELING FINANCIAL BUBBLES AND MARKET CRASHES -- What Is a Model? -- Strategy for Model Construction in Finance -- Basic Principles -- The Principle of Absence of Arbitrage Opportunity -- Existence of Rational Agents -- "Rational Bubbles" and Goldstone Modes of the Price "Parity Symmetry" Breaking -- Price Parity Symmetry -- Speculation as Spontaneous Symmetry Breaking -- Basic Ingredients of the Two Models -- The Risk-Driven Model -- Summary of the Main Properties of the Model -- The Crash Hazard Rate Drives the Market Price -- Imitation and Herding Drive the Crash Hazard Rate -- The Price-Driven Model -- Imitation and Herding Drive the Market Price -- The Price Return Drives the Crash Hazard Rate -- Risk-Driven versus Price-Driven Models -- Chapter 6 HIERARCHIES, COMPLEX FRACTAL DIMENSIONS, AND LOG-PERIODICITY -- Critical Phenomena by Imitation on Hierarchical Networks -- The Underlying Hierarchical Structure of Social Networks -- Critical Behavior in Hierarchical Networks -- A Hierarchical Model of Financial Bubbles -- Origin of Log-Periodicity in Hierarchical Systems -- Discrete Scale Invariance -- Fractal Dimensions -- Organization Scale by Scale: The Renormalization Group -- Principle and Illustration of the Renormalization Group -- The Fractal Weierstrass Function: A Singular Time-Dependent Solution of the Renormalization Group -- Complex Fractal Dimensions and Log-Periodicity -- Importance and Usefulness of Discrete Scale Invariance.

Existence of Relevant LengthScales -- Prediction -- Scenarios Leading to Discrete Scale Invariance and Log-Periodicity -- Newcomb-Benford Law of First Digits and the Arithmetic System -- The Log-Periodic Law of the Evolution of Life? -- Nonlinear Trend-Following versus Nonlinear Fundamental Analysis Dynamics -- Trend Following: Positive Nonlinear Feedback and Finite-Time Singularity -- Reversal to the Fundamental Value: Negative Nonlinear Feedback -- Some Characteristics of the Price Dynamics of the Nonlinear Dynamical Model -- Chapter 7 AUTOPSY OF MAJOR CRASHES: UNIVERSAL EXPONENTS AND LOG-PERIODICITY -- The Crash of October 1987 -- Precursory Pattern -- Aftershock Patterns -- The Crash of October 1929 -- The Three Hong Kong Crashes of 1987, 1994, and 1997 -- The Hong Kong Crashes -- The Crash of October 1997 and Its Resonance on the U.S. Market -- Currency Crashes -- The Crash of August 1998 -- Nonparametric Test of Log-Periodicity -- The Slow Crash of 1962 Ending the "Tronics" Boom -- The Nasdaq Crash of April 2000 -- "Antibubbles" -- The "Bearish" Regime on the Nikkei Starting from January 1, 1990 -- The Gold Deflation Price Starting in Mid-1980 -- Synthesis: "Emergent" Behavior of the Stock Market -- Chapter 8 BUBBLES, CRISES, AND CRASHES IN EMERGENT MARKETS -- Speculative Bubbles in Emerging Markets -- Methodology -- Latin-American Markets -- Asian Markets -- The Russian Stock Market -- Correlations across Markets: Economic Contagion and Synchronization of Bubble Collapse -- Implications for Mitigations of Crises -- Chapter 9 PREDICTION OF BUBBLES, CRASHES, AND ANTIBUBBLES -- The Nature of Predictions -- How to Develop and Interpret Statistical Tests of Log-Periodicity -- First Guidelines for Prediction -- What Is the Predictive Power of Equation (15)? -- How Long Prior to a Crash Can One Identify the Log-Periodic Signatures?.

A Hierarchy of Prediction Schemes -- The Simple Power Law -- The "Linear" Log-Periodic Formula -- The "Nonlinear" Log-Periodic Formula -- The Shank's Transformation on a Hierarchy of Characteristic Times -- Application to the October 1929 Crash -- Application to the October 1987 Crash -- Forward Predictions -- Successful Prediction of the Nikkei 1999 Antibubble -- Successful Prediction of the Nasdaq Crash of April 2000 -- The U.S. Market, December 1997 False Alarm -- The U.S. Market, October 1999 False Alarm -- Present Status of Forward Predictions -- The Finite Probability That No Crash Will Occur during a Bubble -- Estimation of the Statistical Significance of the Forward Predictions -- Statistical Confidence of the Crash"Roulette" -- Statistical Significance of a Single Successful Prediction via Bayes's Theorem -- The Error Diagram and the Decision Process -- Practical Implications on Different Trading Strategies -- Chapter 10 2050: THE END OF THE GROWTH ERA? -- Stock Markets, Economics, and Population -- The Pessimistic Viewpoint of "Natural" Scientists -- The Optimistic Viewpoint of "Social" Scientists -- Analysis of the Faster-Than-Exponential Growthof Population, GDP, and Financial Indices -- Refinements of the Analysis -- Complex Power Law Singularities -- Prediction for the Coming Decade -- The Aging "Baby Boomers" -- Related Works and Evidence -- Scenarios for the "Singularity" -- Collapse -- Transition to Sustainability -- Resuming Accelerating Growth by Overpassing Fundamental Barriers -- The Increasing Propensity to Emulate the Stock Market Approach -- References -- Index.

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Electronic reproduction. Ann Arbor, Michigan : ProQuest Ebook Central, 2024. Available via World Wide Web. Access may be limited to ProQuest Ebook Central affiliated libraries.