Financial ``Anti-Bubbles'': Log-Periodicity in Gold and Nikkei collapses

We propose that imitation between traders and their herding behaviour not only lead to speculative bubbles with accelerating over-valuations of financial markets possibly followed by crashes, but also to ``anti-bubbles'' with decelerating market devaluations following all-time highs. For this, we propose a simple market dynamics model in which the demand decreases slowly with barriers that progressively quench in, leading to a power law decay of the market price decorated by decelerating log-periodic oscillations. We document this behaviour on the Japanese Nikkei stock index from 1990 to present and on the Gold future prices after 1980, both after their all-time highs. We perform simultaneously a parametric and non-parametric analysis that are fully consistent with each other. We extend the parametric approach to the next order of perturbation, comparing the log-periodic fits with one, two and three log-frequencies, the latter one providing a prediction for the general trend in the coming years. The non-parametric power spectrum analysis shows the existence of log-periodicity with high statistical significance, with a prefered scale ratio of $\lambda \approx 3.5$ for the Nikkei index $\lambda \approx 1.9$ for the Gold future prices, comparable to the values obtained for speculative bubbles leading to crashes.Comment: 14 pages with 4 figure

НАРРАТИВНАЯ ЭКОНОМИКА И НЕЙРОЭКОНОМИКА

This article is a reworked lecture I have given at theFinancialUniversityunder the Government of theRussian FederationinMoscow. This lecture has considered the epidemiology of narratives relevant to economic fluctuations (outcomes), allowing them to “go viral” and spread far away, even worldwide, and thereby influencing economic outcomes. However, I had to accommodate my talk to the Russian audience adding some illustrative examples for better understanding. My basic goal in this paper is to describe what we know about narratives and the penchant of the human mind to be engaged by them, to consider reasons to expect that narratives might well be thought of as important, largely exogenous shocks to the aggregate economy. Thus, the main focus was on narratives going viral, affecting the economy in an age of neuroimaging, big data. This is because the human brain has always been highly tuned towards narratives, whether factual or not, to justify ongoing actions — even in such basic actions as spending and investing. Though these narratives are deeply human phenomena that are difficult to study in a scientific manner, quantitative analysis may help us gain a better understanding of these epidemics in the future. Many examples are seen as revealing the importance of the linkage of human brains and now computers through narratives associated with popular models of the economy and offering new research opportunities for both economics and neuroscience.Эта статья является переработанной лекцией, которую я прочитал в Финансовом университете при Правительстве Российской Федерации в Москве. В этой лекции была рассмотрена эпидемиология нарративов, имеющих отношение к экономическим колебаниям (результатам), что позволило им «стать вирусными», распространиться далеко, даже по всему миру, и тем самым повлиять на экономические результаты. Тем не менее я должен был адаптировать мое выступление для российской аудитории, добавив некоторые иллюстративные примеры для лучшего понимания. Моя основная цель в этой статье состоит в том, чтобы описать то, что мы знаем о нарративах и склонности человеческого разума к их восприятию, а затем обосновать причины нашего ожидания, что нарративы вполне могут рассматриваться как важные, в основном экзогенные потрясения для экономики в целом. Таким образом, основное внимание было уделено нарративам, которые становятся вирусными, влияющими на экономику в эпоху нейровизуализации больших данных. Это потому, что человеческий мозг всегда был настроен на рассказы, будь то фактические или нет, чтобы оправдать текущие действия — даже в таких основных действиях, как расходы и инвестиции. Поскольку эти рассказы являются глубоко человеческими явлениями, которые трудно изучить на научной основе, количественный анализ может помочь нам в будущем лучше понять эти эпидемии. Многие примеры рассматриваются как важные доказательства связи человеческого мозга и теперь компьютеров через рассказы, связанные с популярными моделями экономики, что и представляет новые возможности для исследований в области как экономики, так и нейронауки.

Noise-induced volatility of collective dynamics

"Noise-induced volatility" refers to a phenomenon of increased level of fluctuations in the collective dynamics of bistable units in the presence of a rapidly varying external signal, and intermediate noise levels. The archetypical signature of this phenomenon is that --beyond the increase in the level of fluctuations-- the response of the system becomes uncorrelated with the external driving force, making it different from stochastic resonance. Numerical simulations and an analytical theory of a stochastic dynamical version of the Ising model on regular and random networks demonstrate the ubiquity and robustness of this phenomenon, which is argued to be a possible cause of excess volatility in financial markets, of enhanced effective temperatures in a variety of out-of-equilibrium systems and of strong selective responses of immune systems of complex biological organisms. Extensive numerical simulations are compared with a mean-field theory for different network topologies

Farmland Prices: Is This Time Different?

The historical behavior of farmland prices, rental rates, and rates of return are examined by treating farmland as an asset with an infinitely long life. It is found that high (low) farmland prices relative to rents have historically preceded extended periods of low (high) net rates of return, rather than greater (smaller) growth in rents. Our analysis shows that this attribute is shared with stocks and housing, and the financial literature provides ample evidence that other assets feature it as well. The long-run relationship linking farmland prices, rents, and rates of return is analyzed. Based on this relationship, we conclude that recent trends are unlikely to be sustainable. The study explores the expected paths that farmland prices and rates of return might follow if they were to eventually conform to the average values observed in the historical sample, and concludes with a discussion of the policy implications. Recommendations for policy makers include close monitoring of farmland lending practices and institutions to allow early identification of potential problems, and identifying in advance appropriate interventions in case recent farmland market trends were to suddenly change

Testing for rational speculative bubbles in the Brazilian residential real-estate market

Speculative bubbles have been occurring periodically in local or global real estate markets and are considered a potential cause of economic crises. In this context, the detection of explosive behaviors in the financial market and the implementation of early warning diagnosis tests are of critical importance. The recent increase in Brazilian housing prices has risen concerns that the Brazilian economy may have a speculative housing bubble. In the present paper, we employ a recently proposed recursive unit root test in order to identify possible speculative bubbles in data from the Brazilian residential real-estate market. The empirical results show evidence for speculative price bubbles both in Rio de Janeiro and Sao Paulo, the two main Brazilian cities

House price Keynesianism and the contradictions of the modern investor subject

This article conceptualises the marked downturn in UK house prices in the 2007-2009 period in relation to longer-term processes of national economic restructuring centred on a new model of homeownership. The structure of UK house prices has been impacted markedly by the Labour Government‟s efforts to ingrain a particular notion of financial literacy amid the move towards an increasingly asset-based system of welfare. New model welfare recipients and new model homeowners have thereby been co-constituted in a manner consistent with a new UK growth regime of „house price Keynesianism‟. However, the investor subjects who drive such growth are necessarily rendered uncertain as compared with the idealised image of Government policy because of their reliance on the credit-creating decisions of private financial institutions. The recent steep decline in UK house prices is explained here as an epiphenomenon of the disruptive effect on the idealised image caused by the dependence of investor subjects on pricing dynamics not of their making

Noise trading and the management of operational risk; firms, traders and irrationality in financial markets

Efficient market models cannot explain the high level of trading in financial markets in terms of asset portfolio adjustment. It is presumed that much of this excessive trading is irrational 'noise' trading. A corollary is that there must either be irrational traders in the market or rational traders with irrational aberrations. The paper reviews the various attempts to explain noise trading in the finance literature concluding that the persistence of irrationality is not well explained. Data from a study of 118 traders in four large investment banks are presented to advance reasons why traders might seek to trade more frequently than financial models predict. The argument is advanced that trades do not simply occur in order to generate profit, but it does not follow that such trading is irrational. Trading may generate information, accelerate learning, create commitments and enhance social capital, all of which sustain traders' long term survival in the market. The paper treats noise trading as a form of operational risk facing firms operating in financial markets and discusses approaches to the management of such risk

The long-term price-earnings ratio

price-earnings ratio;value premium;arbitrage trading rule;UK stock returns;contrarian investment Abstract:  The price-earnings effect has been thoroughly documented and is the subject of numerous academic studies. However, in existing research it has almost exclusively been calculated on the basis of the previous year's earnings. We show that the power of the effect has until now been seriously underestimated due to taking too short-term a view of earnings. Looking at all UK companies since 1975, using the traditional P/E ratio we find the difference in average annual returns between the value and glamour deciles to be 6%. This is similar to other authors' findings. We are able to almost double the value premium by calculating the P/E ratio using earnings averaged over the previous eight years

Variability in the Bulk Composition and Abundance of Dissolved Organic Matter In the Lower Mississippi and Pearl Rivers

[1] In this study, we examined the temporal and spatial variability of dissolved organic matter (DOM) abundance and composition in the lower Mississippi and Pearl rivers and effects of human and natural influences. In particular, we looked at bulk C/N ratio, stable isotopes (delta N-15 and delta C-13) and C-13 nuclear magnetic resonance (NMR) spectrometry of high molecular weight (HMW; 0.2 mu m to 1 kDa) DOM. Monthly water samples were collected at one station in each river from August 2001 to 2003. Surveys of spatial variability of total dissolved organic carbon (DOC) and nitrogen ( DON) were also conducted in June 2003, from 390 km downstream in the Mississippi River and from Jackson to Stennis Space Center in the Pearl River. Higher DOC ( 336 - 1170 mu M), C/N ratio,% aromaticity, and more depleted delta N-15 (0.76 - 2.1 parts per thousand) were observed in the Pearl than in the lower Mississippi River (223 - 380 mu M, 4.7 - 11.5 parts per thousand, respectively). DOC, C/N ratio, delta C-13, delta N-15, and % aromaticity of Pearl River HMW DOM were correlated with water discharge, which indicated a coupling between local soil inputs and regional precipitation events. Conversely, seasonal variability in the lower Mississippi River was more controlled by spatial variability of a larger integrative signal from the watershed as well as in situ DOM processing. Spatially, very little change occurred in total DOC in the downstream survey of the lower Mississippi River, compared to a decrease of 24% in the Pearl River. Differences in DOM between these two rivers were reflective of the Mississippi River having more extensive river processing of terrestrial DOM, more phytoplankton inputs, and greater anthropogenic perturbation than the Pearl River

Theory of Fano-Kondo effect of transport properties through quantum dots

The Fano-Kondo effect in zero-bias conductance is investigated based on a theoretical model for the T-shaped quantum dot. The conductance as a function of the gate voltage is generally characterized by a Fano asymmetric parameter q. With varying temperature the conductance shows a crossover between the high and low temperature regions compared with the Kondo temperature T_K: two Fano asymmetric peaks at high temperatures and the Fano-Kondo plateau inside a Fano peak at low temperatures. Temperature dependence of conductance is calculated numerically by the Finite temperature density matrix renormalization group method (FT-DMRG).Comment: 8 pages, 7 figure