The main objective of this book is to show that behind the bewildering diversity of historical speculative episodes, it is possible to find hidden regularities. Speculative bubbles require the study of various episodes in order for a comparative perspective to be obtained and the analysis developed in this book follows a few simple but unconventional ideas. To that end, the author demonstrates how some of the basic concepts of dynamical system theory, such as the notions of impulse response, reaction times and frequency analysis, play an instrumental role in describing and predicting speculative behavior.
Author(s): Bertrand M. Roehner
Edition: 1
Publisher: Cambridge University Press
Year: 2002
Language: English
Pages: 250
Cover......Page 1
Half-title......Page 3
Title......Page 5
Copyright......Page 6
Contents......Page 7
Preface......Page 13
Part I Econophysics......Page 21
1 Why econophysics?......Page 23
1 Newton’s apple paradigm revisited......Page 24
1.1 Newton’s apple......Page 25
1.2 An economic parallel......Page 27
2 Simple phenomena first......Page 28
2.1 Two-body problems......Page 29
2.2 Complexity classification......Page 30
2.3 The role of time: Simon’s bowl metaphor......Page 31
2.4 Simple aspects of complex systems......Page 32
3 From plausible reasons to regularities......Page 34
3.1 The pot of yoghurt paradigm......Page 35
3.2 Plausible causes versus scientific explanations......Page 37
3.3 Regularities......Page 40
3.5 Models need accurate empirical targets......Page 41
4.1 The primacy of observation......Page 42
4.3 Clusters of events and comparative analysis......Page 43
2 The beginnings of econophysics......Page 45
1 Pre-econophysics......Page 46
1.1.3 Pareto (1848–1923)......Page 47
1.2 Assessment of pre-econophysics......Page 48
2.1 Idiosyncrasies of economic journals......Page 49
2.2 The beginnings of econophysics......Page 50
2.3 Neurophysics......Page 51
2.5 Formation of an econophysical community......Page 53
2.6 A personal note......Page 54
2.7 The future of econophysics......Page 55
Part II How do markets work?......Page 57
3 Social man versus homo economicus......Page 59
1 The social man and the Zeitgeist......Page 60
1.1.1 Slave trade......Page 61
1.1.2 X-ray medical instruments......Page 62
1.2 Quantitative measure of the role of the Zeitgeist......Page 65
1.3 Ways and means of the Zeitgeist......Page 67
2.1 The search for uniformities and regularities......Page 68
2.2.1 Commodity markets......Page 69
2.2.2 Land and real estate......Page 70
2.2.3 Postage stamps and antiquarian books......Page 71
2.2.4 Share prices......Page 72
2.2.5 Conclusion......Page 74
4 Organization of speculative markets......Page 75
1.1.1 Role of declining communication costs......Page 76
1.1.2 Productivity increase......Page 78
1.2 The thorny question of commission rates......Page 80
2 Trading techniques......Page 82
2.1.1 A “not so simple” transaction......Page 83
2.1.3 Options......Page 84
2.1.4 How options can be used for hedging purposes......Page 85
2.2 How to create a successful financial product?......Page 86
2.3.2 Investment funds......Page 88
2.3.4 Stock options......Page 89
2.4 Sources of instability: the boomerang effect......Page 90
3 Organization of the banking system......Page 92
3.2 Canada versus the United States......Page 93
4.1 Stock prices......Page 94
4.2 Downgrades, failure rate, and suspensions......Page 98
Part III Regularities in speculative episodes......Page 101
5 Collective behavior of investors......Page 103
1.1 The high-tech boom of the automobile industry......Page 104
1.2 The phase of “natural selection”......Page 105
1.3 High-tech booms backed by venture capital......Page 107
2 Flight to safety......Page 109
2.2 Nineteenth-century banking panics......Page 111
2.3 Relationship with grain crisis......Page 112
2.4 “Deliver us from inflation”......Page 113
2.4.2 Antiquarian books......Page 114
2.4.3 Precious metals......Page 115
2.4.4 Conclusion......Page 116
2.5 Flight to quality in equity markets......Page 117
3 To sell or not to sell?......Page 123
3.1 Formulation of the problem......Page 124
3.3 Short-term response (weekly fluctuations)......Page 128
3.4 Long-term response (yearly fluctuations)......Page 129
3.5 Effect of mutual funds purchases on stock prices......Page 132
3.6 Conclusion......Page 134
4.1 Impact of property crashes on economic growth......Page 135
4.2 Delay in the response of real estate markets......Page 137
4.3.1 United States......Page 138
4.3.2 France......Page 141
1 A “thermometer” of speculative frenzy......Page 142
1.1 Real estate......Page 144
1.2 Bonds......Page 145
2 Shape of price peaks......Page 146
2.1 Empirical evidence for asymmetry parameters......Page 148
2.2 Mathematical description of the shape of peaks......Page 150
2.3 Empirical evidence for shape parameters......Page 151
3 Stock market crashes......Page 153
3.1 When?......Page 154
3.2.2 “Frightening Fridays”......Page 155
3.3 Overnight crashes......Page 157
3.4 Lawsuits in the wake of market crashes......Page 159
4.1 Volume at the level of individual stocks......Page 160
4.2 Volume movements at market level......Page 161
4.2.2 Decimalization......Page 162
5 Economic consequences of stock market collapses......Page 163
5.1.1 Consumer confidence estimates......Page 164
5.1.2 Consumer confidence and consumption......Page 165
5.1.3 How stock prices affect consumer confidence......Page 166
5.2 Relationship between stock price levels and commission rates......Page 169
5.3.4 Comparison......Page 171
Part IV Theoretical framework......Page 175
7 Two classes of speculative peaks......Page 177
1.2 Real estate prices......Page 178
2 The price multiplier criterion......Page 180
3 The ensemble dispersion criterion......Page 183
4 Two classes......Page 187
5 Bond market......Page 192
6.1 Dispersion of peak times......Page 195
6.2 Relationship between amplitude and response time......Page 196
8 Dynamics of speculative peaks: theoretical framework......Page 197
1.1 A comparative perspective......Page 198
1.3 Users and speculators......Page 199
1.4 Transaction friction......Page 200
1.5 Agents and markets form a compound......Page 202
2.2 Dynamic equations: first order......Page 203
2.3 Dynamic equations: second order......Page 204
2.4 Dynamic equations: higher orders......Page 205
2.5 Light or heavy damping?......Page 206
3.1 Amplitude versus duration of the ascending phase......Page 208
3.2 Peak amplitude and proportion of investors......Page 210
3.3 Synchronization effects......Page 213
Appendix A: Green’s function for a fourth-order equation......Page 215
9 Theoretical framework: implications......Page 218
1.1 Description......Page 219
1.2 Interpretation......Page 220
1.3 Statistical evidence......Page 222
2 Breakdown of scaling......Page 223
2.1 First-order process......Page 224
2.2 Second-order process......Page 227
3 Ensemble coefficient of variation......Page 228
4 The stochastic spatial arbitrage model for U-class goods......Page 231
5 Perspectives......Page 234
Main data sources......Page 236
References......Page 239
Index......Page 247
