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Bubbles, shocks and elementary technical trading strategies

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  • Fry, John

Abstract

In this paper we provide a unifying framework for a set of seemingly disparate models for bubbles, shocks and elementary technical trading strategies in financial markets. Markets operate by balancing intrinsic levels of risk and return. This seemingly simple observation is commonly over-looked by academics and practitioners alike. Our model shares its origins in statistical physics with others. However, under our approach, changes in market regime can be explicitly shown to represent a phase transition from random to deterministic behaviour in prices. This structure leads to an improved physical and econometric model. We develop models for bubbles, shocks and elementary technical analysis strategies. We apply our model to real-estate bubbles and to the on-going Eurozone crisis. We close by comparing the results of our mathematical model with the results of qualitative analyses from the finance literature.

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  • Fry, John, 2013. "Bubbles, shocks and elementary technical trading strategies," MPRA Paper 47052, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:47052
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    References listed on IDEAS

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    Cited by:

    1. Cheah, Eng-Tuck & Fry, John, 2015. "Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin," Economics Letters, Elsevier, vol. 130(C), pages 32-36.

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    More about this item

    Keywords

    Bubbles; Crashes; Shocks; Technical Analysis; Cycles;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises

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