Predicting economic market crises using measures of collective panic

Details Predicting economic market crises using measures of collective panic Predicting economic market crises using measures of collective panic

2011-02-13

arxiv.org/abs/1102.2620v1

Economy

Quantitative Finance

Statistical Finance

17 pages, 4 figures

Scientific paper

Predicting panic is of critical importance in many areas of human and animal behavior, notably in the context of economics. The recent financial crisis is a case in point. Panic may be due to a specific external threat, or self-generated nervousness. Here we show that the recent economic crisis and earlier large single-day panics were preceded by extended periods of high levels of market mimicry --- direct evidence of uncertainty and nervousness, and of the comparatively weak influence of external news. High levels of mimicry can be a quite general indicator of the potential for self-organized crises.

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