Forecasting Crash in Financial Market Using LPPL Model

8 Pages Posted: 10 Jul 2020

Date Written: May 20, 2020

Abstract

LPPL is an application of power-law which states the pace at which bubble will form. Financial markets often witness powerful traces of Power Law. Each financial crash globally can be linked with the Power Law connection. Log-Periodic Power Law (LPPL) is a framework model to identify the speculative bubble or asset bubble in the financial market and forecast its most probable end. By fitting Log-Periodic Power Law (LPPL) equation to financial time series, it is possible to predict the event of a crash. The probable collapsing time of the asset bubble which is the critical time forecast the catastrophe of market crash. Thus, the LPPL framework model is used to predict the collapse of the speculative bubble which could lead to a crash in financial market.

JEL Classification: G01

Suggested Citation

Priyam, Forecasting Crash in Financial Market Using LPPL Model (May 20, 2020). Available at SSRN: https://ssrn.com/abstract=3629305

Priyam (Contact Author)

Christ University ( email )

Hosur Road
Near Dairy Circle
Bengaluru, KS Karnataka 560040
India

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