Predicting Economic Market Crises Using Measures of Collective Panic
17 Pages Posted: 8 Jul 2011 Last revised: 22 Sep 2011
Date Written: February 13, 2011
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.
Keywords: Quantitative Finance, Statistical Finance, Computer Science, Social and Information Networks, Physics and Society
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