Multivariate bubbles and antibubbles
The University of Sheffield, Management School,
Conduit Road, Sheffield
Received: 20 May 2014
Published online: 1 August 2014
In this paper we develop models for multivariate financial bubbles and antibubbles based on statistical physics. In particular, we extend a rich set of univariate models to higher dimensions. Changes in market regime can be explicitly shown to represent a phase transition from random to deterministic behaviour in prices. Moreover, our multivariate models are able to capture some of the contagious effects that occur during such episodes. We are able to show that declining lending quality helped fuel a bubble in the US stock market prior to 2008. Further, our approach offers interesting insights into the spatial development of UK house prices.
Key words: Statistical and Nonlinear Physics
© EDP Sciences, Società Italiana di Fisica, Springer-Verlag, 2014