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http://bura.brunel.ac.uk/handle/2438/26715
Title: | Testing for financial crashes using the Log Periodic Power Law model |
Authors: | Brée, DS Joseph, NL |
Keywords: | financial time series;bubbles and crashes;nonlinear time series;robustness;log periodic power law |
Issue Date: | 5-Jun-2013 |
Publisher: | Elsevier |
Citation: | Brée, D.S. and Joseph, N.L. (2013) 'Testing for financial crashes using the Log Periodic Power Law model', International Review of Financial Analysis, 30, pp. 287 - 297. doi: 10.1016/j.irfa.2013.05.005. |
Abstract: | Many papers claim that a Log Periodic Power Law (LPPL) model fitted to financial market bubbles that precede large market falls or 'crashes', contains parameters that are confined within certain ranges. Further, it is claimed that the underlying model is based on influence percolation and a martingale condition. This paper examines these claims and their validity for capturing large price falls in the Hang Seng stock market index over the period 1970 to 2008. The fitted LPPLs have parameter values within the ranges specified post hoc by Johansen and Sornette (2001) for only seven of these 11 crashes. Interestingly, the LPPL fit could have predicted the substantial fall in the Hang Seng index during the recent global downturn. Overall, the mechanism posited as underlying the LPPL model does not do so, and the data used to support the fit of the LPPL model to bubbles does so only partially. © 2013. |
Description: | The file on this repository is a preprint. It has not been certified by peer review. Please consult the version of record at https://doi.org/10.1016/j.irfa.2013.05.005 |
URI: | https://bura.brunel.ac.uk/handle/2438/26715 |
DOI: | https://doi.org/10.1016/j.irfa.2013.05.005 |
ISSN: | 1057-5219 |
Other Identifiers: | ORCID iD: Nathan Lael Joseph https://orcid.org/0000-0002-2182-0847 arXiv:1002.1010v2 [q-fin.ST] |
Appears in Collections: | Dept of Economics and Finance Research Papers |
Files in This Item:
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Preprint.pdf | 527.23 kB | Adobe PDF | View/Open |
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