Self-Induced Panic And The Financial Crisis | The Physics arXiv Blog | Technology Review
“Panicky behaviour can trigger stock market collapses. Now researchers say there could be a way of spotting it in advance
One idea in the world of finance is that the volatility of a market is a good measure of the risks it represents. So it’s easy to imagine that volatility should also be a good predictor of financial crises, when the biggest corrections occur.
That’s not the case, say Dion Harman at the New England Complex Systems Institute in Cambridge, MA, and a few buddies. They say that while volatility increases at the beginning of a crisis, it is unreliable as a leading indicator of trouble ahead.
Instead, they’ve found a better predictor of trouble—the presence of sheer, unadulterated panic.”
Ref: arxiv.org/abs/1102.2620: Predicting Economic Market Crises Using Measures Of Collective Panic
Dion Harmon, Marcus A. M. de Aguiar, David D. Chinellato, Dan Braha, Irving R. Epstein, Yaneer Bar-Yam