CRITICAL CRASHES?

Critical Crashes?

In this short note we discuss recent attempts to describe pre-crash market dynamics with analogies from theory of critical phenomena. Stochastic dynamics is a commonly used approach to describe the time evolution of financial markets. The large number of agents, their complex mutual influence and obscure decision making all of these leave the probabilistic picture as the only viable way to desc...

Crashes as Critical

We study a rational expectation model of bubbles and crashes. The model has two components : (1) our key assumption is that a crash may be caused by local self-reinforcing imitation between noise traders. If the tendency for noise traders to imitate their nearest neighbors increases up to a certain point called the \critical" point, all noise traders may place the same order (sell) at the same ...

Crashes as Critical Points

We study a rational expectation model of bubbles and crashes. The model has two components: (1) our key assumption is that a crash may be caused by local self-reinforcing imitation between noise traders. If the tendency for noise traders to imitate their nearest neighbors increases up to a certain point called the “critical” point, all noise traders may place the same order (sell) at the same t...

Predicting critical crashes ? A new restriction for the free variables

] 6 J an 1 99 9 Critical Crashes

The authors argue that the word “critical” in the title is not purely literary. Based on their and other previous work on nonlinear complex dynamical systems, they summarize present evidence, on the Oct. 1929, Oct. 1987, Oct. 1987 Hong-Kong, Aug. 1998 global market events and on the 1985 Forex event, for the hypothesis advanced three years ago that stock market crashes are caused by the slow bu...