Abstract
Proposed in this paper is an original method assuming potential and kinetic energies for prices and for the conservation of their sum that has been developed for forecasting exchanges. Connections with a power law are shown. Semiempirical applications on the S&P500, DJIA, and NASDAQ predict a forthcoming recession in them. An emerging market, the Istanbul Stock Exchange index ISE-100 is found harboring a potential to continue to rise.
[1] P. Gopikrishnan, V. Plerou, X. Gabaix and H.E. Stanley: “Statistical properties of share volume traded in financial markets”, Phys. Rev. E, Vol. 62, (2000), pp. 4493–4496. http://dx.doi.org/10.1103/PhysRevE.62.R449310.1103/PhysRevE.62.R4493Search in Google Scholar
[2] J-P. Bouchaud and R. Cont: “A Langevin approach to stock market fluctuations and crashes”, Preprint: arXiv:cond-mat/9801279; Eur. Phys. J. B, Vol. 6, (1998), pp. 543–550. http://dx.doi.org/10.1007/s10051005058210.1007/s100510050582Search in Google Scholar
[3] P. Gopikrishnan, V. Plerou, L.A.N. Amaral, M. Meyer and H.E. Stanley: “Scaling of the Distribution of Fluctuations of Financial Market Indices”, Phys. Rev. E, Vol. 60, (1999), pp. 5305–5316. http://dx.doi.org/10.1103/PhysRevE.60.530510.1103/PhysRevE.60.5305Search in Google Scholar
[4] R. Cont and J.-P. Bouchaud: “Herd behavior and aggregate fluctuations in financial markets”, Macroeconomic Dynamics, Vol. 4, (2000), pp. 170–196. http://dx.doi.org/10.1017/S136510050001502910.1017/S1365100500015029Search in Google Scholar
[5] Ç. Tuncay: “Stock mechanics: a classical approach”, Preprint: arXiv:physics/0503163. Search in Google Scholar
[6] K. Ide and D. Sornette: “Oscillatory Finite-Time Singularities in Finance, Population and Rupture”, Phys. A, Vol. 307, (2002), pp. 63–106; Preprint: arXiv:cond-mat/0106047. http://dx.doi.org/10.1016/S0378-4371(01)00585-410.1016/S0378-4371(01)00585-4Search in Google Scholar
[7] D. Sornette and K. Ide: “Theory of self-similar oscillatory finite-time singularities in Finance, Population and Rupture”, Int. J. Mod. Phys. C, Vol. 14(3), (2002), pp. 267–275; Preprint: arXiv:cond-mat/0106054. Search in Google Scholar
[8] V. Pareto: Cours d”economie politique reprinted as a volume of Oeuvres Compl‘etes, Droz, Geneva, 1965. Search in Google Scholar
[9] G. Zipf: Human Behavior and the Principle of Last Effort, Addison-Wesley, Cambridge, MA, 1949. Search in Google Scholar
[10] H. Saleur, C.G. Sammis and D. Sornette: “Discrete scale invariance, complex fractal dimensions, and log-periodic fluctuations in seismicity”, J. Geophys. Res., Vol. 101, (1996), pp. 17661–17677. http://dx.doi.org/10.1029/96JB0087610.1029/96JB00876Search in Google Scholar
[11] W.I. Newman, D.L. Turcotte and A.M. Gabrielov: “Log-periodic behavior of a hierarchical failure model with applications to precursory seismic activation”, Phys. Rev. E, Vol. 52(5), (1995), pp. 4827–4835. http://dx.doi.org/10.1103/PhysRevE.52.482710.1103/PhysRevE.52.4827Search in Google Scholar
[12] J.A. Feigenbaum and P.G.O. Freund: “Discrete Scaling in Stock Markets Before Crashes”, Int. J. Mod. Phys. C, Vol. 10, (1996), pp. 3737–3745; Preprint: arXiv:cond-mat/9509033. http://dx.doi.org/10.1142/S021797929600204X10.1142/S021797929600204XSearch in Google Scholar
[13] D. Sornette, A. Johansen and J-P Bouchaud: “Stock market crashes, Precursors and Replicas”, J. Phys. I, Vol. 6, (1996), pp. 167–175; Preprint: arXiv:cond-mat/9510036. http://dx.doi.org/10.1051/jp1:199613510.1051/jp1:1996135Search in Google Scholar
[14] D. Sornette: “Discrete scale invariance and complex dimensions”, Phys. Rep., Vol. 297, (1998), pp. 239–270; Preprint: arXiv:cond-mat/cond-mat/9707012. http://dx.doi.org/10.1016/S0370-1573(97)00076-810.1016/S0370-1573(97)00076-8Search in Google Scholar
[15] J.-P. Bouchaud: “Power laws in economics and finance: some ideas from physics”, Quant. Fin., Vol. 1, (2001), pp. 105–112. http://dx.doi.org/10.1088/1469-7688/1/1/30710.1088/1469-7688/1/1/307Search in Google Scholar
[16] X. Gabaix, P. Gopikrishnan, V. Plerou and H.E. Stanley: “A theory of power-law distributions in financial market fluctuations”, Nature, Vol. 423, (2003), pp. 267–270. http://dx.doi.org/10.1038/nature0162410.1038/nature01624Search in Google Scholar
[17] X. Gabaix: “Zipf's Law for Cities”, Quart. J. Econom., Vol. 114(3), (1999), pp. 739–767. http://dx.doi.org/10.1162/00335539955613310.1162/003355399556133Search in Google Scholar
[18] Y. Huang, H. Saleour, C.G. Sammis and D. Sornette: “Precursors, aftershocks, criticality and self-organized criticality”, Europhys. Lett., Vol. 41, (1998), pp. 43–48; Preprint: arXiv:cond-mat/9612065. http://dx.doi.org/10.1209/epl/i1998-00113-x10.1209/epl/i1998-00113-xSearch in Google Scholar
[19] B.D. Malamud, G. Morein and D.L. Turcotte: “Forest fires: An example of self-organized critical behavior”, Science, Vol. 281, (1998), pp. 1840–1842. http://dx.doi.org/10.1126/science.281.5384.184010.1126/science.281.5384.1840Search in Google Scholar
[20] S. Drożdż, F. Ruf, J. Speth and M. Wójcík: “Imprints of log-periodic self-similarity in the stock market”, Eur. Phys. J. B, Vol. 10, (1999), pp. 589–593. http://dx.doi.org/10.1007/s10051005089010.1007/s100510050890Search in Google Scholar
[21] S. Drożdż, F. Grümmer, F. Ruf and J. Speth: “Log-periodic self-similarity: an emerging financial law?”, Physica A, Vol. 324, (2003), pp. 174–182. http://dx.doi.org/10.1016/S0378-4371(02)01848-410.1016/S0378-4371(02)01848-4Search in Google Scholar
[22] J.-P. Bouchaud, M. M'ezard and M. Potters: “Statistical properties of stock order books: empirical results and models”, Quant. Fin., Vol. 2, (2002), pp. 251–256. http://dx.doi.org/10.1088/1469-7688/2/4/30110.1088/1469-7688/2/4/301Search in Google Scholar
[23] A. Johansen and D. Sornette: “Modeling the stock market prior to large crashes”, Eur. Phys. J. B, Vol. 9, (1999), pp. 167–174. http://dx.doi.org/10.1007/s10051005075210.1007/s100510050752Search in Google Scholar
[24] D. Sornette and A. Johansen: “Large financial crashes”, Physica A, Vol. 245, (1997), pp. 411–422l; Preprint: arXiv:cond-mat/9704127. http://dx.doi.org/10.1016/S0378-4371(97)00318-X10.1016/S0378-4371(97)00318-XSearch in Google Scholar
[25] A. Johansen, O. Ledoit and D. Sornette: “Crashes as critical points”, Int. J. Theor. Appl. Finance, Vol. 3, (2000), pp. 219–255. Search in Google Scholar
[26] W-X. Zhou and D. Sornette: “Renormalization group analysis of the 2000-2002 anti-bubble in the US S&P 500 index: Explanation of the hierarchy of 5 crashes and prediction”, Physica A, Vol. 330, (2003), pp. 584–604; Preprint arXiv:physics/0301023. http://dx.doi.org/10.1016/j.physa.2003.09.02210.1016/j.physa.2003.09.022Search in Google Scholar
[27] D. Sornette and W-X. Zhou: “The US 2000-2002 market descent: How much longer and deeper?”, Quant. Fin., Vol. 2, (2002), pp. 468–481. http://dx.doi.org/10.1088/1469-7688/2/6/30610.1088/1469-7688/2/6/306Search in Google Scholar
[28] A. Johansen, O. Ledoit and D. Sornette: “Crashes as critical points”, Int. J. The. Appl. Finance, Vol. 3, (2000), pp. 219–255. Search in Google Scholar
[29] W-X. Zhou and D. Sornette: “Evidence of a worldwide stock market log-periodic anti-bubble since mid-2000”, Physica A, Vol. 330, (2002), pp. 543–583; Preprint:arXiv:cond-mat/0212010. http://dx.doi.org/10.1016/j.physa.2002.12.00110.1016/j.physa.2002.12.001Search in Google Scholar
[30] J. Laherrèere and D. Sornette: “Stretched exponential distributions in nature and economy: ”fat tails” with characteristic scales”, Eur. Phys. J. B, Vol. 2, (1998), pp. 525–539. http://dx.doi.org/10.1007/s10051005027610.1007/s100510050276Search in Google Scholar
[31] A. Johansen and D. Sornette: “Critical ruptures”, Eur. Phys. J. B, Vol. 18, (2000), pp. 163–181; Preprint: arXiv:cond-mat/0003478. http://dx.doi.org/10.1007/s10051007008910.1007/s100510070089Search in Google Scholar
[32] For many other articles of D. Sornette see also several issues of the journal Eur. Phys. J. B and search Preprint: http://xxx.lanl.gov/abs/cond-mat/. Search in Google Scholar
[33] J-P. Bouchaud: “Power laws in economics and finance: some ideas from physics”, Quant. Fin., Vol. 1, (2001), pp. 105–112. http://dx.doi.org/10.1088/1469-7688/1/1/30710.1088/1469-7688/1/1/307Search in Google Scholar
[34] For detailed information about NYSE shares and indices, URL: http://biz.yahoo.com/i/. Search in Google Scholar
[35] For detailed information about ISE, URL: http://www.imkb.gov.tr/sirket/sirketler_y_2003.thm. Search in Google Scholar
© 2006 Versita Warsaw
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.