Multivariate bubbles and antibubbles

Fry, John (2014): Multivariate bubbles and antibubbles.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Econophysics Bubbles Antibubbles Contagion
• Subjects: C - Mathematical and Quantitative Methods > C0 - General; C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C10 - General; G - Financial Economics > G0 - General; G - Financial Economics > G0 - General > G01 - Financial Crises

References

A. Johansen, O. Ledoit, and D. Sornette, I. J. Theor. and Appl. Financ., 3, 219 (2000)

D. Sornette. Why stock markets crash: critical events in complex financial systems. (Princeton University Press, Princeton, 2003)

W-X. Zhou and D. Sornette, Phys. A. 387, 243 (2008).

W-X. Zhou and D. Sornette, Phys. A. 388, 869 (2009).

P. Sieczka, D. Sornette, and J. A. Holyst, Eur. Phys. J. B 82, 257 (2011)

J. A. Feigenbaum, Quant. Financ. 1, 346 (2001)

J. Feigenbaum, Quant. Financ. 1, 527 (2001)

G. Chang and J. Feigenbaum, Quant. Financ. 6, 15 (2006)

G. Chang and J. Feigenbaum, Quant. Financ. 8, 723 (2008)

D. Bree, D. Challet, D. and P.P. Perrano, Quant. Financ. 13, 275 (2013)

D. Sornette, R. Woodard, W. Yan and W-X. Zhou, Physica A 392, 4417 (2013)

P. Geraskin and D. Fantazzini, Eur. J. of Financ. 19, 366 (2013)

L. Lin and D. Sornette, Eur. J. of Financ. 19, 344 (2013)

J. R. Kurz-Kim, Applied Econ. Lett. 19, 1465 (2012)

Z-Q. Jiang, W-X. Zhou, D. Sornette, R. Woodard, K. Bastiaensen and P. Cauwels, J. of Econ. Behav. and Organ. 74, 149 (2010)

D. Bree and N. Joseph, Int. Rev. of Financ. Anal. 30, 287 (2013)

H.M. Markowitz, Portfolio Selection: Efficient Diversification of Investments, 2nd edn. (Blackwell, Malden, Massachussets, 1971).

J. Fry, Eur. Phys. J. B 85, 405 (2012).

J. Fry, Eur. Phys. J. B 87, 1 (2014).

R. Peston and L. Knight, How do we fix this mess? The economic price of having it all and the route to lasting prosperity, (Hodder and Stoughton, London, 2012)

W-X. Zhou and D. Sornette, Phys. A 348, 428 (2005)

W-X. Zhou and D. Sornette, Phys. A 337, 586 (2004)

K. Guo, W-X. Zhou, S-W. Cheng, and D. Sornette, PLoS One 6, e22794 (2011) SornettecauwelsD. Sornette and P. Cauwels, Risks 2, 103 (2014).

D. Ardila, P. Cauwels, D. Sanadgol and D. Sornette, The Swiss Real Estate J. 6, 38 (2014)

D. Sornette and Y. Malevergne, Extreme financial risks: From dependence to risk management. (Springer, Berlin Heidelberg New York, 2006).

A. McNeil, R. Frey and P. Embrechts, Quantitative risk management. (Princeton University Press, Princeton, 2005).

C. Hott and P. Monnin, J. of Real Estate and Financ. Econ. 36, 427 (2008)

A. Black, P. Fraser and M. Hoesli, J. of Bus. Financ. and Account. 33, 1535 (2006)

R. Rowthorn, Spat. Econ. Anal., 5, 363 (2010)

J. Zeira, J. of Monet. Econ. 43, 237 (1999)

J-P. Bouchaud, and M. Potters, Theory of financial risk and derivative pricing. From statistical physics to risk management, 2nd edn. (Cambridge University Press, Cambridge, 2003).

W. Yan, R. Woodard and D. Sornette, Phys. A 391, 1361 (2012).

D. Sornette and A. Helmstetter, Phys. A, 318, 577-591 (2003)

G. Pryce and K. Gibb, Real Estate Econ. 34, 377 (2006)

D. R. Cox and D. Oakes, Analysis of survival data. (Chapman and Hall/CRC, Boca Raton London New York Washington D. C., 1984)

J. Y. Campbell, A. Lo and J. A. C. MacKinlay, The econometrics of financial time series.. (Princeton University Press, Princeton, 1997).

J. Fry, J. of Applied Res. in Financ. 2, 131 (2010).

D. MacKenzie and T. Spears, `The formula that killed Wall Street?' The Gaussian Copula and the material cultures of modelling. (Working Paper, The University of Edinburgh, 2012).

L. Borland, Quant. Financ. 12, 1367 (2012).

J. Coaffee, Terrorism, risk and the city. (Ashgate, Aldershot, 2003).

N. Carnot, V. Koen, and B. Tissot, Economic forecasting and policy, 2nd edn. (Palgrave Macmillan, Basingstoke New York, 2011).

T. Plummer, Forecasting financial markets. The psychology of successful investing. (Kogan Page, London, 2006).

D. Hillier, S., Ross, R., Westerfeld, J., Jaffe, and B. Jordan, Corporate Finance, 4th edn. (McGraw-Hill, Maidenhead, Berkshire, 2010).