Bubbles and crashes: theory - empirical analyses

Jan-Christian Gerlach, Dongshuai Zhao and Didier Sornette, Forecasting financial crashes: a dynamic risk management approach
(Prognose von Finanzcrashs für ein dynamisches Risikomanagement), Absolut Report 6, 31-39 (2020) (digital version: external pagewww.absolut-report.de/AR06-2020-3) (external pagehttps://www.absolut-research.de/publikationen/absolutreport/ausgaben/detail/ae/Issue/show/absolutreport-62020) (external pagehttp://ssrn.com/abstract=3744816)

Jan-Christian Gerlach, Jerome Kreuser and Didier Sornette, Crash-sensitive Kelly Strategy built on a modified Kreuser-Sornette bubble model tested over three decades of twenty equity indices, Quantitative Finance (submitted 8 Oct 2020)(external pagehttp://ssrn.com/abstract=3708035)

Ke Wu, Spencer Wheatley and Didier Sornette,
Inefficiency and predictability in the Brexit Pound market: a natural experiment, European Journal of Finance, DOI:10.1080/1351847X.2020.1805781, pp. 1-21 (2020)
(external pagehttp://ssrn.com/abstract=2940173)

Tianhao Zhi, Zhongfei Li, Zhiqiang Jiang, Lijian Wei and Didier Sornette, Is there a housing bubble in China? Emerging Markets Review 39, 120-132 (2019) (external pagehttp://ssrn.com/abstract=3098064)

Riza Demirer, Guilherme Demos, Rangan Gupta & Didier Sornette, On the predictability of stock market bubbles: evidence from LPPLS confidence multi-scale indicators, Quantitative Finance, 19:5, 843-858 (2019) external page(http://ssrn.com/abstract=3076609)

Jerome Kreuser and Didier Sornette
Super-Exponential RE Bubble Model with Efficient Crashes,
The European Journal of Finance, DOI: 10.1080/1351847X.2018.1521342 (2018)
(external pagehttp://ssrn.com/abstract=3064668)

Guilherme Demos and Didier Sornette, Comparing nested data sets and objectively determining financial bubbles' inceptions,
Physica A: Statistical Mechanics and its Applications 524, 661-675 (2019)
(external pagehttp://ssrn.com/abstract=3007070)

Didier Sornette, Peter Cauwels and Georgi Smilyanov, Can We Use Volatility to Diagnose Financial Bubbles? Lessons from 40 historical bubbles, Quantitative Finance and Economics, 2 (1), 486-594 (2018)
(external pagehttp://ssrn.com/abstract=3006642)

Li Lin and Didier Sornette, "Speculative Influence Network'' during financial bubbles: application to Chinese Stock Markets, Journal of Economic Interaction & Coordination DOI 10.1007/s11403-016-0187-7 (2017)
(external pagehttp://arxiv.org/abs/1510.08162 and external pagehttp://ssrn.com/abstract=2686229)

Qun Zhang, Didier Sornette and Hao Zhang
Anticipating critical transitions of the housing market: New evidence from China,
The European Journal of Finance DOI: 10.1080/1351847X.2019.1588763 (Published online: 21 Mar 2019)
(external pagehttp://ssrn.com/abstract=2969801)

Diego Ardila, Dorsa Sanadgol, Peter Cauwels and Didier Sornette, Identification and critical time forecasting of real estate bubbles in the U.S.A, Quantitative Finance 17 (4), 613-631 (2017) (DOI: 10.1080/14697688.2016.1207796 (2016), pp. 1-19) (external pagehttp://ssrn.com/abstract=2465000)

Vladimir Filimonov, Guilherme Demos and Didier Sornette, Modified Profile Likelihood Inference and Interval Forecast of the Burst of Financial Bubbles, Quantitative Finance, DOI: 10.1080/14697688.2016.1276298, pp. 1-20 (2017)
(external pagehttp://arxiv.org/abs/1602.08258 and external pagehttp://ssrn.com/abstract=2739832)

Diego Ardila and Didier Sornette, Dating the financial cycle: a wavelet proposition, Finance Research Letters 19, 298-304 (2016)
(external pagehttp://ssrn.com/abstract=2775271)

Guilherme Demos and Didier Sornette, Birth or burst of financial bubbles: which one is easier to diagnose? Quantitative Finance,
DOI: 10.1080/14697688.2016.1231417, pp. 1-19 (2016)
external page(http://dx.doi.org/10.1080/14697688.2016.1231417)

Qun Zhang, Qunzhi Zhang and Didier Sornette, Early warning signals of financial crises with multi-scale quantile regressions of Log-Periodic Power Law Singularities, PLoS ONE 11(11): e0165819. doi:10.1371/journal.pone.0165819, pp. 1-43 (2016)
(external pagehttp://ssrn.com/abstract=2674128)

Qunzhi Zhang, Didier Sornette, Mehmet Balcilar, Rangan Gupta, Zeynel Abidin Ozdemir and Hakan Yetkiner, LPPLS Bubble Indicators over Two Centuries of the S&P 500 Index. Physica A 458, 126-139 (15 September 2016)
(external pagehttp://ssrn.com/abstract=2727755)

Didier Sornette, Guilherme Demos, Qun Zhang, Peter Cauwels, Vladimir Filimonov and Qunzhi Zhang,
Real-time prediction and post-mortem analysis of the Shanghai 2015 stock market bubble and crash, Journal of Investment Strategies 4 (4), 77-95 (2015) (Swiss Finance Institute Research Paper No. 15-32. Available at external page(http://ssrn.com/abstract=2647354)

Diego Ardila-Alvarez, Zalan Forro and Didier Sornette, The Acceleration effect and Gamma factor in Asset Pricing, Physica A 569, 125367 (2021) Swiss Finance Institute Research Paper No. 15-30. Available at SSRN: external pagehttp://ssrn.com/abstract=2645882 (Posted: 21 Aug 2015)

Zalan Forro, Ryan Woodard and Didier Sornette, Using trading strategies to detect phase transitions in financial markets, Physical Review E 91, 042803 (14 April 2015) external pagehttp://journals.aps.org/pre/abstract/10.1103/PhysRevE.91.042803

Matthias Leiss, Heinrich H. Nax and Didier Sornette, Super-Exponential Growth Expectations and the Global Financial Crisis, Journal of Economic Dynamics and Control 55, 1-13 (2015) external pagehttp://dx.doi.org/10.1016/j.jedc.2015.03.005 external page(http://ssrn.com/abstract=2477396)

Jan Henrik Wosnitza and Didier Sornette, Analysis of log-periodic power law singularity patterns in time series related to credit risk, Eur. Phys. J. B 88: 97, 1-11, DOI: 10.1140/epjb/e2015-50019-9 (2015) external pagehttp://link.springer.com/article/10.1140%2Fepjb%2Fe2015-50019-9

Wanfeng Yan, Ryan Woodard, Didier Sornette, Inferring Fundamental Value and Crash Nonlinearity from Bubble Calibration, Quantitative Finance 14 (7), 1273-1282 (2014) external page(http://arxiv.org/abs/1011.5343 and external pagehttp://papers.ssrn.com /sol3/papers.cfm?abstract_id=1719124)

Didier Sornette and Peter Cauwels, 1980-2008: The Illusion of the Perpetual Money Machine and what it bodes for the future, Risks 2, 103-131 (2014) doi:10.3390/risks2020103 external page(http://arxiv.org/abs/1212.2833 and external pagehttp://ssrn.com/abstract=2191509)
Download[first version presented under the title "The Illusion of the Perpetual Money Machine" in the Notenstein Academy White Paper Series (Dec. 2012) (PDF, 1.7 MB)]

Diego Ardila, Peter Cauwels, Dorsa Sanadgol and Didier Sornette, Is There A Real Estate Bubble in Switzerland? The Swiss Real Estate Journal 6, 38-47 (2013)
(external pagehttp://arxiv.org/abs/1303.4514 and external pagehttp://ssrn.com/abstract=2237561)

Wanfeng Yan, Ryan Woodard and Didier Sornette, Role of diversification risk in financial bubbles, the Journal of Investment Strategies 1 (4), 63-83 (2012)
(external pagehttp://arxiv.org/abs/1107.0838 and external pagehttp://ssrn.com/abstract=2191539 )

Zalán Forró, Peter Cauwels and Didier Sornette, When games meet reality: is Zynga overvalued? Journal of Investment Strategies 1 (3), 119-145 (2012)
(external pagehttp://arxiv.org/abs/1204.0350: final version 3 April 2012)

Comment of the editor-in-chief Arthur M. Berd
The Journal of Investment Strategies
Journal of Investment Strategies vol. 1, no. 3

Z. Forró, P. Cauwels and D. Sornette, "When Games Meet Reality: is Zynga Overvalued?"
The discussion article in the "Investment Strategy Forum" by Forró, Cauwels and Sornette could not have been more timely and topical. It focuses on the valuation of Zynga, a social gaming network closely associated with Facebook, and claims that its share price (as of time of writing) represents a bubble.
The authors do not make such an assertion lightly. Their analysis, in contrast with the vast majority of "valuation as a metaphor" analyses done in the space of trendy social companies, is unusually deep and thorough. They don't take the claims of vast numbers of users at face value, nor they extrapolate the potential revenues from these users "to infinity and beyond" as is customary in many a sell-side analyst projections. Instead, they develop a detailed dynamic model of growth/decline cycle of each new game, and show how to calibrate such models on specific game usage numbers. Then they proceed to value the company by revenue streams from known and potential future games, and eventually come to conclusion that even the most optimistic estimate of the share price is well below the trading price of the Zynga stock. Finally, they proceed to identify the critical timing of events which could serve as catalysts for revaluation of the share price.
While we were reviewing the article, originally sent to us in mid-April 2012, many of its predictions have come true. In fact, the authors had to come back and add a "post-mortem" section to the paper to discuss the events which occurred since April 17, and how their specific predictions have fared (which they did very well).
While I think the magnitude of the price correction in Zynga stock has surely been influenced by the coincidental flare up in the overall risk aversion due to the ongoing European crisis, I do believe that the authors analysis was very much on the mark and that their methodology gives a much more solid basis for valuation of social stocks like Zynga and Facebook than anything I have seen before. I think this article raises the bar for the level of serious fundamental valuation in this space, and for the level of detail that a strategy paper should have.

A. Huesler, D. Sornette and C.H. Hommes, Super-exponential bubbles in lab experiments: evidence for anchoring over-optimistic expectations on price, Journal Economic Behavior and Organization 92, 304-316 (2013)
(external pagehttp://arxiv.org/abs/1205.0635 and external pagehttp://ssrn.com/abstraxt=2060978)

Wanfeng Yan, Ryan Woodard, Didier Sornette, Diagnosis and Prediction of Market Rebounds in Financial Markets, Physica A 391(4), 1361-1380 (2012)
(external pagehttp://arxiv.org/abs/1003.5926 and external pagehttp://ssrn.com/abstract=1586742)

Peter Cauwels and Didier Sornette, Quis pendit ipsa pretia: facebook valuation and diagnostic of a bubble based on nonlinear demographic dynamics, Journal of Portfolio Management 38 (2), 56-66 (2012)
(external pagehttp://arxiv.org/abs/1110.1319 and external pagehttp://ssrn.com/abstract=1965431)
DownloadFacebook IPO - updated valuation and user forecasting based on S1-filing (PDF, 178 KB) (6 Feb 2012) DownloadFacebook IPO - updated valuation and user forecasting (PDF, 539 KB) (9 May 2012)

Vladimir Filimonov and Didier Sornette, A Stable and Robust Calibration Scheme of the Log-Periodic Power Law Model, Physica A 392 (17), 3698-3707 (2013)
external page(http://arxiv.org/abs/1108.0099 and external pagehttp://ssrn.com/abstract=2190784)

Wanfeng Yan, Reda Rebib, Ryan Woodard and Didier Sornette, Detection of Crashes and Rebounds in Major Equity Markets, International Journal of Portfolio Analysis & Management (IJPAM) 1(1), 59-79 (2012)
external page(http://arxiv.org/abs/1108.0077)

Didier Sornette, Ryan Woodard, Wanfeng Yan and Wei-Xing Zhou, Clarifications to Questions and Criticisms on the Johansen-Ledoit-Sornette Bubble Model, Physica A 392 (19), 4417-4428 (2013)
(external pagehttp://arxiv.org/abs/1107.3171) and (external pagehttp://ssrn.com/abstract=2191524)

A. Johansen and D. Sornette, Shocks, Crashes and Bubbles in Financial Markets, Brussels Economic review (Cahiers economiques de Bruxelles) 53 (2), 201-253 (summer 2010)
(external pagehttp://ideas.repec.org/s/bxr/bxrceb.html) (published version)
external page(http://arXiv.org/abs/cond-mat/0210509)

Ryan Woodard, Didier Sornette, Maxim Fedorovsky, The Financial Bubble Experiment: Advanced Diagnostics and Forecasts of Bubble Terminations, Volume III (beginning of experiment)
external page(http://arxiv.org/abs/1011.2882)

Wanfeng Yan, Ryan Woodard, Didier Sornette, Leverage Bubble, Physica A 391, 180-186 (2012)
external page(http://arxiv.org/abs/1011.0458)

Didier Sornette, Ryan Woodard, Maxim Fedorovsky, Stefan Reimann, Hilary Woodard, Wei-Xing Zhou (The Financial Crisis Observatory), The Financial Bubble Experiment: Advanced Diagnostics and Forecasts of Bubble Terminations Volume II - Master Document
external page(http://arxiv.org/abs/1005.5675)

W. Yan, R. Woodard, D. Sornette, Diagnosis and Prediction of Tipping Points in Financial Markets: Crashes and Rebounds, Physics Procedia 3 (5), 1641-1657 (2010)
external page(http://arxiv.org/abs/1001.0265)

Zhi-Qiang Jiang, Wei-Xing Zhou, Didier Sornette, Ryan Woodard, Ken Bastiaensen, Peter Cauwels, Bubble Diagnosis and Prediction of the 2005-2007 and 2008-2009 Chinese stock market bubbles, Journal of Economic Behavior and Organization 74, 149-162 (2010)
(external pagehttp://arxiv.org/abs/0909.1007 and external pagehttp://ssrn.com/abstract=1479479; previous version with ex-ante prediction at external pagehttp://arxiv.org/abs/0907.1827)

K. Bastiaensen, P. Cauwels, D. Sornette, R. Woodard, W.-X. Zhou, The Chinese Equity Bubble: Ready to Burst (2009)
external page(http://arxiv.org/abs/0907.1827)

D. Sornette, R. Woodard and W.-X. Zhou, The 2006-2008 Oil Bubble: evidence of speculation and prediction, Physica A 388, 1571-1576 (2009)
external page(http://arxiv.org/abs/0806.1170)

W.-X. Zhou and D. Sornette, Analysis of the real estate market in Las Vegas: Bubble, seasonal patterns, and prediction of the CSW indexes, Physica A 387, 243-260 (2008)
external page(http://arxiv.org/abs/0704.0589)

W.-X. Zhou and D. Sornette, A case study of speculative financial bubbles in the South African stock market 2003-2006, Physica A 388, 869-880 (2009)
external page(http://arxiv.org/abs/physics/0701171)

W.-X. Zhou and D. Sornette, Is There a Real-Estate Bubble in the US? Physica A 361, 297-308 (2006)
external page(http://arxiv.org/abs/physics/0506027) and external pagehttp://physicsweb.org/articles/news/9/6/4/1

D. Sornette and W.-X. Zhou, Predictability of Large Future Changes in Major Financial Indices, International Journal of Forecasting 22, 153-168 (2006)
external page(http://arXiv.org/abs/cond-mat/0304601)

W.-X. Zhou and Didier Sornette, Testing the Stability of the 2000-2003 US Stock Market "Antibubble'', Physica A 348, 428-452 (2005).
external page(http://arXiv.org/abs/cond-mat/0310092)

W.-X. Zhou and D. Sornette, Causal Slaving of the U.S. Treasury Bond Yield Antibubble by the Stock Market Antibubble of August 2000, Physica A 337, 586-608 (2004)
external page(http://arXiv.org/abs/cond-mat/0312658)

W.-X. Zhou and D. Sornette, Antibubble and Prediction of China's stock market and Real-Estate, Physica A, 337 (1-2), 243-268 (2004)
external page(http://arXiv.org/abs/cond-mat/0312149)

D. Sornette and W.-X. Zhou, 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, Physica A 332, 412-440 (2004)
external page(http://arXiv.org/abs/cond-mat/0306496)

D. Sornette and Wei-Xing Zhou , The US 2000-2003 Market Descent: Clarifications, Quantitative Finance 3 (3), C39-C41 (2003)
external page(http://arXiv.org/abs/cond-mat/0305004)

Wei-Xing Zhou and Didier Sornette, 2000-2003 Real Estate Bubble in the UK but not in the USA, Physica A 329, 249-263 (2003)
external page(http://arXiv.org/abs/physics/0303028)

W.-X. Zhou and D. Sornette, Evidence of a Worldwide Stock Market Log-Periodic Anti-Bubble Since mid-2000, Physica A 330, 543-583 (2003)
external page(http://arXiv.org/abs/cond-mat/0212010)

D. Sornette and W.-X. Zhou, The US 2000-2002 Market Descent: How Much Longer and Deeper? Quantitative Finance 2 (6), 468-481 (2002)
external page(http://arXiv.org/abs/cond-mat/0209065) and external page(http://www.informaworld.com/smpp/content~content=a723716319~db=all~order=page)

Johansen, A. and D. Sornette, Large Stock Market Price Drawdowns Are Outliers, Journal of Risk 4(2), 69-110, Winter 2001/02)
external page(http://arXiv.org/abs/cond-mat/0010050)

A. Johansen and D. Sornette, Finite-time singularity in the dynamics of the world population and economic indices,
Physica A 294 (3-4), 465-502 (2001)
external page(http://arXiv.org/abs/cond-mat/0002075)

A. Johansen and D. Sornette, Bubbles and anti-bubbles in Latin-American, Asian and Western stock markets: An empirical study, International Journal of Theoretical and Applied Finance 4 (6), 853-920 (2001)
external page(http://xxx.lanl.gov/abs/cond-mat/9907270) and
external page(http://econpapers.repec.org/paper/wpawuwpfi/9907004.htm)

A. Johansen and D. Sornette, The Nasdaq crash of April 2000: Yet another example of log-periodicity in a speculative bubble ending in a crash, European Physical Journal B 17, 319-328 (2000)
external page(http://arXiv.org/abs/cond-mat/0004263) and
external page(http://papers.ssrn.com/sol3/papers.cfm?abstract_id=224145)

A. Johansen and D. Sornette, Evaluation of the quantitative prediction of a trend reversal on the Japanese stock market in 1999, Int. J. Mod. Phys. C Vol. 11 (2), 359-364 (2000)
external page(http://arXiv.org/abs/cond-mat/0002059)

B.M. Roehner and D. Sornette, ''Thermometers'' of Speculative Frenzy, European Physical Journal B 16, 729-739 (2000)
external page(http://arXiv.org/abs/cond-mat/0001353)

B. Roehner and D. Sornette, Analysis of the phenomenon of speculative trading in one of its basic manifestations: stamp bubbles, Int. J. Mod. Phys. C 10, N6, 1099-1116 (1999)
external page(http://xxx.lanl.gov/abs/cond-mat/9906435)

A. Johansen and D. Sornette, Financial "anti-bubbles'': Log-periodicity in Gold and Nikkei collapses, Int. J. Mod. Phys. C 10(4), 563-575 (1999)
external page(http://xxx.lanl.gov/abs/cond-mat/9901268)

A. Johansen and D. Sornette, Critical Crashes, Risk, Vol 12, No. 1, p.91-94 (1999)
external page(http://xxx.lanl.gov/abs/cond-mat/9901035)

A. Johansen and D. Sornette, Modeling the stock market prior to large crashes, Eur. Phys. J. B 9:1, 167-174 (1999)
external page(http://xxx.lanl.gov/abs/cond-mat/9811066)

B.M. Roehner and D. Sornette, The sharp peak-flat trough pattern and critical speculation, European Physical Journal B 4, 387-399 (1998)
external page(http://xxx.lanl.gov/abs/cond-mat/9802234)

A . Johansen and D. Sornette, Stock market crashes are outliers, European Physical Journal B 1, 141-143 (1998)
external page(http://xxx.lanl.gov/abs/cond-mat/9712005)

D. Sornette, A. Johansen and J.-P. Bouchaud, Stock market crashes, Precursors and Replicas, J.Phys.I France 6, n1, 167-175 (1996)
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