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A precursor of market crashes: Empirical laws of Japan's internet bubble

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  • T. Kaizoji

Abstract

In this paper, we quantitatively investigate the properties of a statistical ensemble of stock prices. We focus attention on the relative price defined as X(t)=S(t)/S(0), where S(0), is the stock price for an onset time of the bubble. We selected approximately 3200 stocks traded on the Japanese Stock Exchange, and formed a statistical ensemble of daily relative prices for each trading day in the 3-year period from January 4, 1999 to December 28, 2001, corresponding to the period in which internet Bubble formed and crashed in the Japanese stock market. We found that the upper tail of the complementary cumulative distribution function of the ensemble of the relative prices in the high value of the price is well described by a power-law distribution, P(S>x) ∼x -α , with an exponent that moves over time. Furthermore we found that as the power-law exponents α approached two, the bubble burst. It is reasonable to suppose that it indicates that internet bubble is about to burst. Copyright EDP Sciences/Società Italiana di Fisica/Springer-Verlag 2006

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  • T. Kaizoji, 2006. "A precursor of market crashes: Empirical laws of Japan's internet bubble," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 50(1), pages 123-127, March.
    • Handle: RePEc:spr:eurphb:v:50:y:2006:i:1:p:123-127
    DOI: 10.1140/epjb/e2006-00142-9
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    References listed on IDEAS

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    1. Roehner,Bertrand M., 2002. "Patterns of Speculation," Cambridge Books, Cambridge University Press, number 9780521802635, November.
    2. Taisei Kaizoji, 2006. "Power laws and market crashes," Papers physics/0603138, arXiv.org.
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    Cited by:

    1. Levan Efremidze & John Rutledge & Thomas D. Willett, 2016. "Capital Flow Surges As Bubbles: Behavioral Finance And Mckinnon’S Over-Borrowing Syndrome Extended," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(02), pages 1-27, June.
    2. Rutledge, John, 2015. "Economics as energy framework: Complexity, turbulence, financial crises, and protectionism," Review of Financial Economics, Elsevier, vol. 25(C), pages 10-18.
    3. Blackwell, Calvin, 2018. "Power Laws in Real Estate Prices? Some Evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 90-98.
    4. Bikramaditya Ghosh & Spyros Papathanasiou & Georgios Pergeris, 2022. "Did cryptocurrencies exhibit log‐periodic power law signature during the second wave of COVID‐19?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 51(3), November.
    5. David Vidal-Tomás & Simone Alfarano, 2020. "An agent-based early warning indicator for financial market instability," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 15(1), pages 49-87, January.
    6. Esteban Guevara Hidalgo, 2015. "Bin Size Independence in Intra-day Seasonalities for Relative Prices," Papers 1501.05176, arXiv.org, revised Dec 2016.
    7. John Rutledge, 2015. "Economics as energy framework: Complexity, turbulence, financial crises, and protectionism," Review of Financial Economics, John Wiley & Sons, vol. 25(1), pages 10-18, April.
    8. Kaizoji, Taisei & Miyano, Michiko, 2016. "Why does the power law for stock price hold?," Chaos, Solitons & Fractals, Elsevier, vol. 88(C), pages 19-23.
    9. Guevara Hidalgo, Esteban, 2017. "Bin size independence in intra-day seasonalities for relative prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 468(C), pages 722-732.
    10. Kerim Eser AFÞAR & Zakayo S. KISAVA, 2018. "The analysis of bubbles and crashes on financial markets for emerging economies: Evidenced From BRICS," Turkish Economic Review, KSP Journals, vol. 5(1), pages 1-11, March.
    11. Cajueiro, Daniel O. & Tabak, Benjamin M. & Werneck, Filipe K., 2009. "Can we predict crashes? The case of the Brazilian stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(8), pages 1603-1609.
    12. Graham Bird & Wenti Du & Thomas Willett, 2017. "Behavioral Finance and Efficient Markets: What does the Euro Crisis Tell us?," Open Economies Review, Springer, vol. 28(2), pages 273-295, April.
    13. Takayuki Mizuno & Takaaki Ohnishi & Tsutomu Watanabe, 2019. "Detecting stock market bubbles based on the cross-sectional dispersion of stock prices," CARF F-Series CARF-F-463, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    14. Takayuki Mizuno & Takaaki Ohnishi & Tsutomu Watanabe, 2016. "Power laws in market capitalization during the Dot-com and Shanghai bubble periods," UTokyo Price Project Working Paper Series 070, University of Tokyo, Graduate School of Economics.
    15. Mizuno, Takayuki & Ohnishi, Takaaki & Watanabe, Tsutomu, 2017. "Stock market bubble detection based on the price dispersion among similar listed Firms," HIT-REFINED Working Paper Series 67, Institute of Economic Research, Hitotsubashi University.
    16. Todorova, Lora & Vogt, Bodo, 2011. "Power law distribution in high frequency financial data? An econometric analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(23), pages 4433-4444.
    17. Takayuki Mizuno & Takaaki Ohnishi & Tsutomu Watanabe, 2016. "Power laws in market capitalization during the Dot-com and Shanghai bubble periods," CARF F-Series CARF-F-392, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    18. Brée, David S. & Joseph, Nathan Lael, 2013. "Testing for financial crashes using the Log Periodic Power Law model," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 287-297.
    19. Mizuno, Takayuki & Ohnishi, Takaaki & Watanabe, Tsutomu, 2016. "Power law in market capitalization during Dot-com and Shanghai bubble periods," HIT-REFINED Working Paper Series 60, Institute of Economic Research, Hitotsubashi University.
    20. Frederic Abergel & Nicolas Huth & Ioane Muni Toke, 2009. "Financial bubbles analysis with a cross-sectional estimator," Papers 0909.2885, arXiv.org.

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