arXiv research

On 2 November 2009, the Financial Bubble Experiment was launched within the Financial Crisis Observatory (FCO) at ETH Zurich (\url{http://www.er.ethz.ch/fco/}). In that initial report, we diagnosed and announced three bubbles on three different assets. In this latest release of 23 December 2009 in this ongoing experime…

Study predicts market bubbles using machine learning and financial news sentiment.

TDA detects financial bubbles through early warning signals.

This is the third installment of the Financial Bubble Experiment. Here we provide the digital fingerprint of an electronic document in which we identify 27 bubbles in 27 different global assets; for 25 of these assets, we present windows of dates of the most likely ending time of each bubble. We will provide that docum…

We define a financial bubble as a period of unsustainable growth, when the price of an asset increases ever more quickly, in a series of accelerating phases of corrections and rebounds. More technically, during a bubble phase, the price follows a faster-than-exponential power law growth process, often accompanied by lo…

This is the second installment of the Financial Bubble Experiment. Here we provide the digital fingerprint of an electronic document in which we identify 7 bubbles in 7 different global assets; for 4 of these assets, we present windows of dates of the most likely ending time of each bubble. We will provide that documen…

Model shows how relaxed leverage can lead to asset price bubbles.

The paper examines Indian market bubbles using financial ratios.

Paper evaluates whether AI is a bubble or a productivity revolution.

Study evaluates cryptocurrency markets, focusing on Bitcoin.

A new model detects financial bubbles with high accuracy.

Study confirms financial bubbles' common patterns in isolated markets.

Modeling financial bubbles and crashes with a cubic momentum function.

We propose two rational expectation models of transient financial bubbles with heterogeneous arbitrageurs and positive feedbacks leading to self-reinforcing transient stochastic faster-than-exponential price dynamics. As a result of the nonlinear feedbacks, the termination of a bubble is found to be characterized by a …

We highlight a very simple statistical tool for the analysis of financial bubbles, which has already been studied in [1]. We provide extensive empirical tests of this statistical tool and investigate analytically its link with stocks correlation structure.

We study the concept of financial bubble in a market model endowed with a set of probability measures, typically mutually singular to each other. In this setting we introduce the notions of robust bubble and robust fundamental value in a consistent way with the existing literature in the case a unique prior exists. The…

Proving the existence of speculative financial bubbles even a posteriori has proven exceedingly difficult so anticipating a speculative bubble ex ante would at first seem an impossible task. Still as illustrated by the recent turmoil in financial markets initiated by the so called subprime crisis there is clearly an ur…

Predicts stock market crashes using rational bubble model.

We introduce a mathematical criterion defining the bubbles or the crashes in financial market price fluctuations by considering exponential fitting of the given data. By applying this criterion we can automatically extract the periods in which bubbles and crashes are identified. From stock market data of so-called the …

Inspired by the question of identifying the start time $τ$ of financial bubbles, we address the calibration of time series in which the inception of the latest regime of interest is unknown. By taking into account the tendency of a given model to overfit data, we introduce the Lagrange regularisation of the normalised …

The paper uses deep learning to detect asset price bubbles in tech stocks.

We introduce the concept of "negative bubbles" as the mirror image of standard financial bubbles, in which positive feedback mechanisms may lead to transient accelerating price falls. To model these negative bubbles, we adapt the Johansen-Ledoit-Sornette (JLS) model of rational expectation bubbles with a hazard rate de…

Leverage is strongly related to liquidity in a market and lack of liquidity is considered a cause and/or consequence of the recent financial crisis. A repurchase agreement is a financial instrument where a security is sold simultaneously with an agreement to buy it back at a later date. Repurchase agreements (repos) ma…

We argue that the present crisis and stalling economy continuing since 2007 are rooted in the delusionary belief in policies based on a "perpetual money machine" type of thinking. We document strong evidence that, since the early 1980s, consumption has been increasingly funded by smaller savings, booming financial prof…

Model explains stock price bubbles through debt crises and financial crashes.

The financial crisis of 2008, which started with an initially well-defined epicenter focused on mortgage backed securities (MBS), has been cascading into a global economic recession, whose increasing severity and uncertain duration has led and is continuing to lead to massive losses and damage for billions of people. H…

Recent academic work has developed a method to determine, in real time, if a given stock is exhibiting a price bubble. Currently there is speculation in the financial press concerning the existence of a price bubble in the aftermath of the recent IPO of LinkedIn. We analyze stock price tick data from the short lifetime…

Study fragility in global financial indices using network analysis.

We show that power-law analyses of financial commentaries from newspaper web-sites can be used to identify stock market bubbles, supplementing traditional volatility analyses. Using a four-year corpus of 17,713 online, finance-related articles (10M+ words) from the Financial Times, the New York Times, and the BBC, we s…

We present an extension of the Johansen-Ledoit-Sornette (JLS) model to include an additional pricing factor called the "Zipf factor", which describes the diversification risk of the stock market portfolio. Keeping all the dynamical characteristics of a bubble described in the JLS model, the new model provides additiona…

There are two major streams of literature on the modeling of financial bubbles: the strict local martingale framework and the Johansen-Ledoit-Sornette (JLS) financial bubble model. Based on a class of models that embeds the JLS model and can exhibit strict local martingale behavior, we clarify the connection between th…

Financial markets are well known for their dramatic dynamics and consequences that affect much of the world's population. Consequently, much research has aimed at understanding, identifying and forecasting crashes and rebounds in financial markets. The Johansen-Ledoit-Sornette (JLS) model provides an operational framew…

We introduce the Speculative Influence Network (SIN) to decipher the causal relationships between sectors (and/or firms) during financial bubbles. The SIN is constructed in two steps. First, we develop a Hidden Markov Model (HMM) of regime-switching between a normal market phase represented by a geometric Brownian moti…

We present a self-consistent model for explosive financial bubbles, which combines a mean-reverting volatility process and a stochastic conditional return which reflects nonlinear positive feedbacks and continuous updates of the investors' beliefs and sentiments. The conditional expected returns exhibit faster-than-exp…

The Johansen-Ledoit-Sornette (JLS) model of rational expectation bubbles with finite-time singular crash hazard rates has been developed to describe the dynamics of financial bubbles and crashes. It has been applied successfully to a large variety of financial bubbles in many different markets. Having been developed fo…

In the current environment of financial distress, many governments are likely to soon become major holders of financial assets, but the policy debate focuses only on the likelihood and extent of short-term market stabilization. This paper shows that government intervention and propping up are likely to lead to long-ter…

Using a recently introduced rational expectation model of bubbles, based on the interplay between stochasticity and positive feedbacks of prices on returns and volatility, we develop a new methodology to test how this model classifies 9 time series that have been previously considered as bubbles ending in crashes. The …

Speculative bubbles have been occurring periodically in local or global real estate markets and are considered a potential cause of economic crises. In this context, the detection of explosive behaviors in the financial market and the implementation of early warning diagnosis tests are of critical importance. The recen…

Amid the current financial crisis, there has been one equity index beating all others: the Shanghai Composite. Our analysis of this main Chinese equity index shows clear signatures of a bubble build up and we go on to predict its most likely crash date: July 17-27, 2009 (20%/80% quantile confidence interval).

A hypothesis that the financial log-periodicity, cascading self-similarity through various time scales, carries signatures of a law is pursued. It is shown that the most significant historical financial events can be classified amazingly well using a single and unique value of the preferred scaling factor lambda=2, whi…

Study asset price bubbles using random matching and stochastic factors.

Cryptocurrency and NFT prices are highly correlated, mirroring historical bubbles.

New dataset and models detect cryptocurrency bubbles using social media data.

We seek to deepen understanding of the micro-foundations of institutionalization while contributing to a sociological theory of markets by investigating the puzzle of price bubbles in financial markets. We find that such markets, despite textbook conditions of high efficiency -- perfect information, atomistic agents, n…

We introduce a model of super-exponential financial bubbles with two assets (risky and risk-free), in which rational investors and noise traders co-exist. Rational investors form expectations on the return and risk of a risky asset and maximize their constant relative risk aversion expected utility with respect to thei…

In Maslov (2003), a two level model of the occurrence of financial pyramid (bubbles) has been considered. We also considered the mathematical analogy of this model to Bose condensation. In the present paper, we explain why Ponzi schemes and bubbles result in a crisis in real economics. In Maslov (2005), the law of incr…

New financial price model using earning yield derived from CIR process.

We present an interacting-agent model of speculative activity explaining bubbles and crashes in stock markets. We describe stock markets through an infinite-range Ising model to formulate the tendency of traders getting influenced by the investment attitude of other traders. Bubbles and crashes are understood and descr…