Building a model of bubbles and crashes and the empirical verification

2016 Fiscal Year Final Research Report

• Project/Area Number: 25380404
• Research Category: Grant-in-Aid for Scientific Research (C)
• Allocation Type: Multi-year Fund
• Section: 一般
• Research Field: Money/ Finance
• Research Institution: International Christian University
• Principal Investigator: KAIZOJI Taisei 国際基督教大学, 教養学部, 教授 (10265960)
• Project Period (FY): 2013-04-01 – 2017-03-31
• Keywords: 投機的バブル / 暴落 / ノイズ・トレーダー / 効率的市場仮説 / 相転移 / エントロピー最大化原理 / 離散選択モデル

Outline of Final Research Achievements

The aim of this study is to propose a theoretical model to elucidate the causes of speculative bubbles and the crashes that inevitably follow. We also demonstrate that the investor’s psychological fluctuation (corresponding to temperature under the maximum entropy principle) is the root cause of speculative bubble and crash. More concretely if the investor’s psychological fluctuation is small, then the stock market generates multiple equilibria, and the herd behaviour of the investors gives rise to a bubble, which is prolonged by their positive-feedback trading but inevitably ends with a crash, which is the first-order phase transition in the asset market. We also describe how cycles of bubbles and crashes are repeated. We also estimate the parameters of the model using the actual financial data and confirm that market crashes are probably predicted by the theoretical model proposed by this study.

Free Research Field

金融経済学、ファイナンス、経済物理学