Exogenous and endogenous crashes as phase transitions in complex financial systems

Fry, John (2012): Exogenous and endogenous crashes as phase transitions in complex financial systems.

Abstract

In this paper we provide a unifying framework for a set of seemingly disparate models for exogenous and endogenous shocks in complex financial systems. Markets operate by balancing intrinsic levels of risk and return. This remains true even in the midst of transitory external shocks. Changes in market regime (bearish to bullish and bullish to bearish) can be explicitly shown to represent a phase transition from random to deterministic behaviour in prices. The resulting models refine the empirical analysis in a number of previous papers.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exogenous; Endogenous; Financial Crashes; Bubbles; Econophysics
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods; C - Mathematical and Quantitative Methods > C0 - General > C00 - General; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

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