Evidence of a worldwide stock market log-periodic anti-bubble since mid-2000

Following our investigation of the USA Standard and Poor index anti-bubble that started in August 2000 (Quant. Finance 2 (2002) 468), we analyze 38 world stock market indices and identify 21 “bearish anti-bubbles” and six “bullish anti-bubbles”. An “anti-bubble” is defined as a self-reinforcing price trajectory with self-similar expanding log-periodic oscillations. Mathematically, a bearish anti-bubble is characterize by a power law decrease of the price (or of the logarithm of the price) as a function of time and by expanding log-periodic oscillations. We propose that bearish anti-bubbles are created by positive price-to-price feedbacks feeding overall pessimism and negative market sentiment further strengthened by inter-personal interactions. Bullish anti-bubbles are here identified for the first time. The most striking discovery is that the majority of European and Western stock market indices as well as other stock indices exhibit practically the same log-periodic power law anti-bubble structure as found for the USA S&P500 index. These anti-bubbles are found to start approximately at the same time, August 2000, in all these markets. This shows a remarkable degree of worldwide synchronization. The descent of the worldwide stock markets since 2000 is thus an international event, suggesting the strengthening of globalization.

[1]  Didier Sornette,et al.  Statistical Significance of Periodicity and Log-Periodicity with Heavy-Tailed Correlated Noise , 2002 .

[2]  A. Shleifer,et al.  Inefficient Markets: An Introduction to Behavioral Finance , 2002 .

[3]  Didier Sornette,et al.  Large Stock Market Price Drawdowns are Outliers , 2000, cond-mat/0010050.

[4]  N. L. Johnson,et al.  Linear Statistical Inference and Its Applications , 1966 .

[5]  Didier Sornette,et al.  Endogenous Versus Exogenous Crashes in Financial Markets , 2002 .

[6]  R Quian Quiroga,et al.  Event synchronization: a simple and fast method to measure synchronicity and time delay patterns. , 2002, Physical review. E, Statistical, nonlinear, and soft matter physics.

[7]  Critical Crashes , 1999, cond-mat/9903142.

[8]  D. Sornette.  Discrete scale invariance and complex dimensions , 1997, cond-mat/9707012.

[9]  THEORY OF SELF-SIMILAR OSCILLATORY FINITE-TIME SINGULARITIES , 2001, cond-mat/0106054.

[10]  Didier Sornette,et al.  Financial Anti-Bubbles Log-Periodicity in Gold and Nikkei Collapses , 1999, cond-mat/9901268.

[11]  Imprints of log-periodic self-similarity in the stock market , 1999, cond-mat/9901025.

[12]  Thomas D Lux,et al.  On Rational Bubbles and Fat Tails , 2002 .

[13]  William H. Press,et al.  Numerical Recipes in FORTRAN - The Art of Scientific Computing, 2nd Edition , 1987 .

[14]  D Cvijovicacute,et al.  Taboo search: an approach to the multiple minima problem. , 1995, Science.

[15]  D. Sornette,et al.  Significance of log-periodic precursors to financial crashes , 2001, cond-mat/0106520.

[16]  Calyampudi R. Rao,et al.  Linear Statistical Inference and Its Applications. , 1975 .

[17]  R. Gorvett.  Why Stock Markets Crash: Critical Events in Complex Financial Systems , 2005 .

[18]  Didier Sornette,et al.  Multi-dimensional rational bubbles and fat tails , 2001 .

[19]  D. Sornette,et al.  Oscillatory finite-time singularities in finance, population and rupture , 2001 .

[20]  Ken Holden,et al.  Economic Forecasting: An Introduction , 1991 .

[21]  A. Johansen.  52 49 v 3 1 5 M ay 2 00 2 Comment on ” Are financial crashes predictable ? ” , 2002 .

[22]  Didier Sornette,et al.  Predicting Financial Crashes Using Discrete Scale Invariance , 1999 .

[23]  D. Sornette,et al.  The US 2000‐2002 market descent: How much longer and deeper? , 2002, cond-mat/0209065.

[24]  Didier Sornette,et al.  A hierarchical model of financial crashes , 1998 .

[25]  Hersh Shefrin,et al.  Beyond greed and fear : understanding behavioral finance and the psychology of investing , 2000 .

[26]  Didier Sornette,et al.  Stock market crashes are outliers , 1998 .

[27]  Robert J. Barro,et al.  Black Monday and the Future of Financial Markets , 1989 .

[28]  Didier Sornette,et al.  A Nonlinear Super-Exponential Rational Model of Speculative Financial Bubbles , 2002 .

[29]  Rama Cont,et al.  Are financial crashes predictable , 1999 .

[30]  Didier Sornette,et al.  “Thermometers” of speculative frenzy , 2000 .

[31]  Richard Roll,et al.  The International Crash of October 1987 , 1988 .

[32]  William N. Goetzmann,et al.  Long-Term Global Market Correlations , 2001 .

[33]  Sunspots and incomplete financial markets: The general case , 1992 .

[34]  O. Blanchard,et al.  Speculative bubbles, crashes and rational expectations , 1979 .

[35]  Another type of log-periodic oscillations on Polish stock market , 2003, cond-mat/0307323.

[36]  Didier Sornette,et al.  On Rational Bubbles and Fat Tails , 1999, cond-mat/9910141.

[37]  D. Sornette,et al.  Evaluation of the Quantitative Prediction of a Trend Reversal on the Japanese Stock Market in 1999 , 2000 .

[38]  Olivier Ledoit,et al.  CRASHES AS CRITICAL POINTS , 1998, cond-mat/9810071.

[39]  D. Sornette,et al.  Stock Market Crashes, Precursors and Replicas , 1995, cond-mat/9510036.

[40]  D. Sornette,et al.  The Nasdaq crash of April 2000: Yet another example of log-periodicity in a speculative bubble ending in a crash , 2000 .

[41]  D Sornette,et al.  Log-periodic route to fractal functions. , 2002, Physical review. E, Statistical, nonlinear, and soft matter physics.

[42]  Anders Johansen.  An alternative view , 2003 .

[43]  Anders Johansen,et al.  Comment on “Are financial crashes predictable?” by L. Laloux, M. Potters, R. Cont, J.-P. Aguilar and J.-P. Bouchaud , 2002, cond-mat/0205249.

[44]  William H. Press,et al.  Book-Review - Numerical Recipes in Pascal - the Art of Scientific Computing , 1989 .

[45]  From rational bubbles to crashes , 2001, cond-mat/0102305.

[46]  M. Bordo,et al.  Globalization and Changing Patterns in the International Transmission of Shocks in Financial Markets , 2002 .