The Financial Crisis Observatory (FCO) is a scientific platform aimed at testing and quantifying rigorously, in a systematic way and on a large scale the hypothesis that financial markets exhibit a degree of inefficiency and a potential for predictability, especially during regimes when bubbles develop. We focus on financial bubbles and crashes, as they constitute the most momentous and revealing financial events that have extraordinarily important impacts and consequences at all levels of the economic spectrum. Our research combines the theory of out-out-equilibrium physical systems, the theory of complex systems, economic and financial models and econometric methods.
The FCO is built on the hypothesis that the underlying cause of a crash should be found in the preceding months and years, in the progressively increasing build-up of market cooperativity, or effective interactions between investors, often translated into accelerating ascent of the market price (the bubble). The objective of the FCO is to provide warnings at different time scales (week, month, quarter) on the development of future financial instabilities.
The FCO currently monitors the 500 largest US companies constituting the S&P500 index, and we plan to extend this analysis to the +6000 US companies quoted in the different US stock markets, as well as to the Japanese, European, Asian and other worldwide financial markets. In parallel, the FCO will monitor and analyze the major financial indices in the major countries. It is also projected to extend this analysis to commodities, currencies and bonds.