Antibubble and prediction of China's stock market and real-estate

We show that the Chinese stock markets are quite different and decoupled from Western markets (which include Tokyo). We document a well-developed log-periodic power-law antibubble in China's stock market, which started in August 2001. We argue that the current stock market antibubble is sustained by a contemporary active unsustainable real-estate bubble in China. The characteristic parameters of the antibubble have exhibited remarkable stability over one year (October 2002–October 2003). Many tests, including predictability over different horizons and time periods, confirm the high significance of the antibubble detection. Based on an analysis including data up to 2003/10/28, we have predicted that the Chinese stock market will stop its negative trend around the end of 2003 and start going up, appreciating by at least 25% in the following 6 months. We present a partial assessment of this prediction at the time of revision of this manuscript (early January 2004). Notwithstanding the immature nature of the Chinese equity market and the strong influence of government policy, we have found maybe even stronger imprints of herding than in other mature markets. This is maybe due indeed to the immaturity of the Chinese market which seems to attract short-term investors more interested in fast gains than in long-term investments, thus promoting speculative herding.

[1]  Bruce I. Jacobs,et al.  Equity Management: Quantitative Analysis for Stock Selection , 2000 .

[2]  Chenggang Xu.  The microstructure of the Chinese stock market , 2000 .

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

[4]  Didier Sornette,et al.  Testing the Stability of the 2000-2003 Us Stock Market 'Antibubble' , 2003 .

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

[6]  Renormalization group analysis of the 2000–2002 anti-bubble in the US S&P500 index: explanation of the hierarchy of five crashes and prediction , 2003, physics/0301023.

[7]  D. Sornette,et al.  Large financial crashes , 1997, cond-mat/9704127.

[8]  C. Kwok,et al.  CROSS‐AUTOCORRELATION BETWEEN A SHARES AND B SHARES IN THE CHINESE STOCK MARKET , 1998, Journal of Financial Research.

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

[10]  Sharon L. Milgram,et al.  The Small World Problem , 1967 .

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

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

[13]  John G. Fernald,et al.  Puzzles in the Chinese Stock Market , 1998, Review of Economics and Statistics.

[14]  M. Firth,et al.  The Information Content of Concurrently Announced Earnings, Cash Dividends, and Stock Dividends: An Investigation of the Chinese Stock Market , 2002 .

[15]  Shimin Chen,et al.  Is Accounting Information Value Relevant in the Emerging Chinese Stock Market? , 1999 .

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

[17]  Didier Sornette,et al.  Generalized q analysis of log-periodicity: applications to critical ruptures. , 2002, Physical review. E, Statistical, nonlinear, and soft matter physics.

[18]  Didier Sornette,et al.  NONPARAMETRIC ANALYSES OF LOG-PERIODIC PRECURSORS TO FINANCIAL CRASHES , 2003 .

[19]  M. Perozek,et al.  Wealth Effects and the Consumption of Leisure: Retirement Decisions During the Stock Market Boom of the 1990s , 2003 .

[20]  A. F. Darrat,et al.  On Testing the Random Walk Hypothesis: A Model-Comparison Approach , 2000 .

[21]  Didier Sornette,et al.  Evidence of a worldwide stock market log-periodic anti-bubble since mid-2000 , 2003 .

[22]  Debbie Glauert.  An alternative view. , 1988, Nursing standard (Royal College of Nursing (Great Britain) : 1987).

[23]  R. Shiller,et al.  Testing the Random Walk Hypothesis: Power Versus Frequency of Observation , 1985 .

[24]  Didier Sornette,et al.  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 , 2003 .

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

[26]  I. Duffy.  Famous First Bubbles: The Fundamentals of Early Manias , 2000, The Journal of Economic History.

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

[28]  Discrete Scale Invariance and Other Cooperative Phenomena in Spatially Extended Systems With Thresho , 1997 .

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

[30]  Dongwei Su.  Chinese Stock Markets: A Research Handbook , 2003 .

[31]  Y. Tse,et al.  Capital Control, Market Segmentation and Cross-Border Flow of Information: Some Empirical Evidence from the Chinese Stock Market , 2001 .

[32]  B. McCarl,et al.  Economics , 1870, The Indian medical gazette.

[33]  D. Sornette,et al.  Testing the stability of the 2000 US stock market “antibubble” , 2005 .

[34]  May,et al.  Stock market crashes , 2004 .

[35]  Jean-Pierre Eckmann,et al.  Q-ANALYSIS OF FRACTAL SETS , 1997 .

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

[37]  Duncan J. Watts,et al.  Six Degrees: The Science of a Connected Age , 2003 .

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

[39]  Finite-Time Singularity Signature of Hyperinflation , 2003, physics/0301007.

[40]  Peter M. Garber.  Famous First Bubbles: The Fundamentals of Early Manias , 2000 .

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

[42]  Didier Sornette,et al.  Critical Market Crashes , 2003, cond-mat/0301543.

[43]  E. White.  Stock market crashes and speculative manias , 1996 .

[44]  Hans-Christian Graf v. Bothmer.  Significance of log-periodic signatures in cumulative noise , 2003, cond-mat/0302507.

[45]  Haiyan Song,et al.  Are Chinese stock markets efficient? A cointegration and causality analysis , 1997 .

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

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

[48]  Irrational Exuberance.  Irrational exuberance? , 2006, Nature Biotechnology.

[49]  James A. Feigenbaum.  More on a statistical analysis of log-periodic precursors to financial crashes , 2001 .

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

[51]  A. Johansen,et al.  Artifactual log‐periodicity in finite size data: Relevance for earthquake aftershocks , 1999, cond-mat/9911421.

[52]  D. Sornette,et al.  The US 2000–2002 market descent: clarification , 2003 .

[53]  W. Lewis,et al.  Manias, Panics and Crashes: A History of Financial Crises , 1979 .

[54]  Ayşe Erzan,et al.  Finite q-differences and the discrete renormalization group , 1997 .

[55]  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.

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

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

[58]  Didier Sornette,et al.  Discrete hierarchical organization of social group sizes , 2004, Proceedings of the Royal Society B: Biological Sciences.

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

[60]  Didier Sornette,et al.  2000-2003 Real Estate Bubble in the UK but not in the USA , 2003 .

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