Predicting financial crashes using discrete scale invariance

Anders Johansen and Didier Sornette, Olivier Ledoit

Abstract

ABSTRACT

The authors present a synthesis of all the available empirical evidence in the light of recent theoretical developments for the existence of characteristic log-periodic signatures of growing bubbles in a variety of markets, including eight unrelated crashes from 1929 to 1998 on stock markets as diverse as the US, Hong Kong, and Russian markets, and on currencies. It is suggested that no major financial crash preceded by an extended bubble has occurred in the past two decades without exhibiting such log-periodic signatures.