Predicting Financial Crashes using Discrete Scale Invariance

Anders Johansen, Olivier Ledoit and Didier Sornette

Abstract

We present a synthesis of all the available empirical evidence in the light of recent theoretical developments for the existence of characteristic log-periodic signatures of growing bubbles in a variety of markets including 8 unrelated crashes from 1929 to 1998 on stock markets as diverse as the US, Hong Kong or the Russian market or on currencies. To our knowledge, no major financial crash preceded by an extended bubble has occurred in the past 2 decades without exhibiting such log-periodic signatures.


Journal of Risk, Volume 1, Number 4, Summer 1999, pages 5-32


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