Description
Title: Critical Crashes: Evidence from the Portuguese Stock Market Using Log Periodic Power Analysis
Abstract: Researchers now have new approaches to risk management, forecasting, the study of bubbles and crashes, and many other issues involving complex systems with self-organized criticality as a result of the extension of the study of critical phenomena from the natural sciences to the field of financial economics (SOC). In this study, stock market crashes are examined using the theory of self-similar oscillatory time singularities. In order to analyze the Portuguese stock market during its crises in 1998, 2007, and 2015, we put the Log Periodic Power Law/Model (LPPM) to the test. Values for the parameters are consistent with those seen in other markets. This is particularly intriguing because, if the model exhibits robust performance for Portugal, a small market with limited liquidity, where the index only consists of 20 stocks, we would be able to consistently support the proposed LPPM methodology. The LPPM methodology suggested here would have allowed us to avoid suffering significant losses during the Portuguese crash of 1998 and to sell at or near the peak of the 2007 crash. In the case of the 2015 financial crisis, we would have gotten a good idea of when the lowest data point would be reached.
Keywords: financial bubble; self-organized criticality; stock crash; log-periodic power law; financial crisis
Paper Quality: SCOPUS / Web of Science Level Research Paper
Subject: Economics
Writer Experience: 20+ Years
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