https://doi.org/10.1007/s100510050752
Modeling the stock market prior to large crashes
1
Institute of Geophysics and Planetary Physics, University of California, Los Angeles,
California 90095, USA
2
Department of Earth and Space Science, University of California, Los Angeles,
California 90095, USA
3
Laboratoire de Physique de la Matière Condensée (CNRS -UMR 6622) ,
Université de Nice-Sophia Antipolis, B.P. 71,
Parc Valrose, 06108 Nice Cedex 2, France
Received:
2
November
1998
Revised:
5
November
1998
Published online: 15 May 1999
We propose that the minimal requirements for a model of stock market price fluctuations should comprise time asymmetry, robustness with respect to connectivity between agents, "bounded rationality" and a probabilistic description. We also compare extensively two previously proposed models of log-periodic behavior of the stock market index prior to a large crash. We find that the model which follows the above requirements outperforms the other with a high statistical significance.
PACS: 01.75.+m – Science and society / 02.50.-r – Probability theory, stochastic processes, and statistics / 89.90.+n – Other areas of general interest to physicists
© EDP Sciences, Società Italiana di Fisica, Springer-Verlag, 1999
