Causal Slaving of the U.S. Treasury Bond Yield Antibubble by the Stock Market Antibubble of August 2000
26 Pages Posted: 26 Mar 2004
Date Written: December 27, 2003
Abstract
Using the descriptive method of log-periodic power laws (LPPL) based on a theory of behavioral herding, we use a battery of parametric and non-parametric tests to demonstrate the existence of an antibubble in the yields with maturities larger than 1 year since October 2000. The concept of "antibubble" describes the existence of a specific LPPL pattern that is thought to reflect collective herding effects. From the dependence of the parameters of the LPPL formula as a function of yield maturities and using lagged cross-correlation calculations between the S\&P 500 and bond yields, we find strong evidence for the following causality: Stock Market - Fed Reserve (Federal funds rate) - short-term yields - long-term yields (as well as a direct and instantaneous influence of the stock market on the long-term yields). Our interpretation is that the FRB is "causally slaved" to the stock market (at least for the studied period), because the later is (taken as) a proxy for the present and future health of the economy.
Keywords: Econophysics, Antibubble, Causality, Yield, Stock market
JEL Classification: C22, C53, E44, E47
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Large Stock Market Price Drawdowns are Outliers
By Anders Johansen and Didier Sornette
-
Significance of Log-Periodic Precursors to Financial Crashes
By Anders Johansen and Didier Sornette
-
On Rational Bubbles and Fat Tails
By Thomas Lux and Didier Sornette
-
Endogenous Versus Exogenous Crashes in Financial Markets
By Anders Johansen and Didier Sornette
-
By Anders Johansen and Didier Sornette
-
2000-2003 Real Estate Bubble in the UK But Not in the USA
By Wei-xing Zhou and Didier Sornette
-
Financial Bubbles, Real Estate Bubbles, Derivative Bubbles, and the Financial and Economic Crisis
By Didier Sornette and Ryan Woodard
-
Financial Bubbles, Real Estate Bubbles, Derivative Bubbles, and the Financial and Economic Crisis
By Didier Sornette and Ryan Woodard
-
Empirical Distributions of Log-Returns: Between the Stretched Exponential and the Power Law?
By Yannick Malevergne, Vladilen Pisarenko, ...