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The crash of October 1987 seen as a phase transition: amplitude and universality

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  • Vandewalle, N.
  • Boveroux, Ph.
  • Minguet, A.
  • Ausloos, M.

Abstract

We analyze the evolution of several financial indices before the crash of October 1987. The amplitude of the crash varies from one index to another. However, assuming that the crash is similar to a phase transition and particularly to a specific heat jump, we find that the crash amplitude can be well estimated by assuming a simple background which differs from market to market. We show that the divergence near the crash event is logarithmic and extends between 2 weeks and 4 years before the october 1987 crash on both S&P500 and Dow Jones indices. The behavior is like that found for the d=2 Ising model specific heat. The latter result is in contrast to previous works which have considered a power law behavior of the index near the crash. Finally, we confirm the presence of log-periodic oscillations and discuss briefly their origin.

Suggested Citation

  • Vandewalle, N. & Boveroux, Ph. & Minguet, A. & Ausloos, M., 1998. "The crash of October 1987 seen as a phase transition: amplitude and universality," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 255(1), pages 201-210.
    • Handle: RePEc:eee:phsmap:v:255:y:1998:i:1:p:201-210
    DOI: 10.1016/S0378-4371(98)00115-0
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    Cited by:

    1. Christophe Schinckus & Çınla Akdere, 2015. "Towards a New Way of Teaching Statistics in Economics: The Case for Econophysics," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 4(3), pages 89-108, September.
    2. Schinckus, Christophe, 2010. "Is econophysics a new discipline? The neopositivist argument," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(18), pages 3814-3821.
    3. Hans-Christian Graf v. Bothmer, 2003. "Significance of log-periodic signatures in cumulative noise," Papers cond-mat/0302507, arXiv.org, revised May 2003.
    4. Domino, Krzysztof, 2020. "Multivariate cumulants in outlier detection for financial data analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 558(C).
    5. Galam, Serge, 2016. "The invisible hand and the rational agent are behind bubbles and crashes," Chaos, Solitons & Fractals, Elsevier, vol. 88(C), pages 209-217.
    6. M. Ausloos & K. Ivanova & N. Vandewalle, 2001. "Crashes : symptoms, diagnoses and remedies," Papers cond-mat/0104127, arXiv.org, revised Apr 2001.
    7. Zhou, Wei-Xing & Sornette, Didier, 2003. "Renormalization group analysis of the 2000–2002 anti-bubble in the US S&P500 index: explanation of the hierarchy of five crashes and prediction," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 330(3), pages 584-604.
    8. Sornette, Didier & Zhou, Wei-Xing, 2004. "Evidence of fueling of the 2000 new economy bubble by foreign capital inflow: implications for the future of the US economy and its stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 332(C), pages 412-440.
    9. Batten, Jonathan A. & Ellis, Craig A. & Fethertson, Thomas A., 2008. "Sample period selection and long-term dependence: New evidence from the Dow Jones index," Chaos, Solitons & Fractals, Elsevier, vol. 36(5), pages 1126-1140.
    10. Domino, Krzysztof, 2011. "The use of the Hurst exponent to predict changes in trends on the Warsaw Stock Exchange," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(1), pages 98-109.
    11. Sousa, Tânia & Domingos, Tiago, 2006. "Equilibrium econophysics: A unified formalism for neoclassical economics and equilibrium thermodynamics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 371(2), pages 492-512.
    12. Ausloos, Marcel, 2021. "Hagiotoponyms in France: Saint popularity, like a herding phase transition," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 566(C).
    13. Martin Herdegen & Sebastian Herrmann, 2017. "Strict Local Martingales and Optimal Investment in a Black-Scholes Model with a Bubble," Papers 1711.06679, arXiv.org.
    14. Domino, Krzysztof, 2012. "The use of the Hurst exponent to investigate the global maximum of the Warsaw Stock Exchange WIG20 index," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(1), pages 156-169.
    15. Marcel Ausloos, 2013. "Econophysics: Comments on a Few Applications, Successes, Methods and Models," IIM Kozhikode Society & Management Review, , vol. 2(2), pages 101-115, July.
    16. Thomas Bury, 2013. "A statistical physics perspective on criticality in financial markets," Papers 1310.2446, arXiv.org, revised Jan 2014.
    17. Struzik, Zbigniew R., 2001. "Wavelet methods in (financial) time-series processing," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 296(1), pages 307-319.
    18. Zhou, Wei-Xing & Sornette, Didier, 2006. "Is there a real-estate bubble in the US?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 361(1), pages 297-308.
    19. Soares, Abner D. & Moura Jr., Newton J. & Ribeiro, Marcelo B., 2016. "Tsallis statistics in the income distribution of Brazil," Chaos, Solitons & Fractals, Elsevier, vol. 88(C), pages 158-171.
    20. Marcel Ausloos, 2014. "A biased view of a few possible components when reflecting on the present decade financial and economic crisis," Papers 1412.0127, arXiv.org.
    21. Struzik, Zbigniew R., 2003. "Econonatology: the physics of the economy in labour," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 344-351.
    22. Christophe Schinckus, 2011. "What can econophysics contribute to financial economics?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 58(2), pages 147-163, June.
    23. Hanwool Jang & Yena Song & Sungbin Sohn & Kwangwon Ahn, 2018. "Real Estate Soars and Financial Crises: Recent Stories," Sustainability, MDPI, vol. 10(12), pages 1-12, December.
    24. Jang, Hanwool & Song, Yena & Ahn, Kwangwon, 2020. "Can government stabilize the housing market? The evidence from South Korea," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 550(C).

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