Why Stock Markets Crash Critical Events in Complex Financial Systems

ISBN-10: 0691118507

ISBN-13: 9780691118505

Edition: 2003

Authors: Didier Sornette

List price: $39.95 Buy it from $25.78
30 day, 100% satisfaction guarantee

If an item you ordered from TextbookRush does not meet your expectations due to an error on our part, simply fill out a return request and then return it by mail within 30 days of ordering it for a full refund of item cost.

Learn more about our returns policy


The scientific study of complex systems has transformed a wide range of disciplines in recent years, enabling researchers in both the natural and social sciences to model and predict phenomena as diverse as earthquakes, global warming, demographic patterns, financial crises, and the failure of materials. In this book, Didier Sornette boldly applies his varied experience in these areas to propose a simple, powerful, and general theory of how, why, and when stock markets crash. Most attempts to explain market failures seek to pinpoint triggering mechanisms that occur hours, days, or weeks before the collapse. Sornette proposes a radically different view: the underlying cause can be sought months and even years before the abrupt, catastrophic event in the build-up of cooperative speculation, which often translates into an accelerating rise of the market price, otherwise known as a "bubble." Anchoring his sophisticated, step-by-step analysis in leading-edge physical and statistical modeling techniques, he unearths remarkable insights and some predictions--among them, that the "end of the growth era" will occur around 2050. Sornette probes major historical precedents, from the decades-long "tulip mania" in the Netherlands that wilted suddenly in 1637 to the South Sea Bubble that ended with the first huge market crash in England in 1720, to the Great Crash of October 1929 and Black Monday in 1987, to cite just a few. He concludes that most explanations other than cooperative self-organization fail to account for the subtle bubbles by which the markets lay the groundwork for catastrophe. Any investor or investment professional who seeks a genuine understanding of looming financial disasters should read this book. Physicists, geologists, biologists, economists, and others will welcomeWhy Stock Markets Crashas a highly original "scientific tale," as Sornette aptly puts it, of the exciting and sometimes fearsome--but no longer quite so unfathomable--world of stock markets.
Used Starting from $26.97
what's this?
Rush Rewards U
Members Receive:
You have reached 400 XP and carrot coins. That is the daily max!
Study Briefs

Limited time offer: Get the first one free! (?)

All the information you need in one place! Each Study Brief is a summary of one specific subject; facts, figures, and explanations to help you learn faster.

Add to cart
Study Briefs
Periodic Table Online content $4.95 $1.99
Add to cart
Study Briefs
Periodic Table Online content $4.95 $1.99
Add to cart
Study Briefs
Business Ethics Online content $4.95 $1.99
Add to cart
Study Briefs
Business Law Online content $4.95 $1.99
Customers also bought

Book details

List price: $39.95
Copyright year: 2003
Publisher: Princeton University Press
Publication date: 3/14/2004
Binding: Paperback
Pages: 448
Size: 6.25" wide x 9.25" long x 1.25" tall
Weight: 1.364
Language: English

Didier Sornette is Professor of Geophysics at the University of California, Los Angeles, and a research director at Centre National de la Recherche Scientifique, France. A specialist in the scientific prediction of catastrophes in a wide range of complex systems, he is the author of the textbook Critical Phenomena in Natural Sciences (Springer-Verlag) and has authored or coauthored more than 300 papers in international journals.

Financial Crashes: What, How, Why, And When?
What Are Crashes, and Why Do We Care?
The Crash of October 1987
Historical Crashes
The Tulip Mania
The South Sea Bubble
The Great Crash of October 1929
Extreme Events in Complex Systems
Is Prediction Possible? A Working Hypothesis
Fundamentals of Financial Markets
The Basics
Price Trajectories
Return Trajectories
Return Distributions and Return Correlation
The Efficient Market Hypothesis and the Random Walk
The Random Walk
A Parable: How Information Is Incorporated in Prices, Thus Destroying Potential "Free Lunches"
Prices Are Unpredictable, or Are They?
Risk-Return Trade-Off
Financial Crashes Are "Outliers"
What Are "Abnormal" Returns?
Drawdowns (Runs)
Definition of Drawdowns
Drawdowns and the Detection of "Outliers"
Expected Distribution of "Normal" Drawdowns
Drawdown Distributions of Stock Market Indices
The Dow Jones Industrial Average
The Nasdaq Composite Index
Further Tests
The Presence of Outliers Is a General Phenomenon
Main Stock Market Indices, Currencies, and Gold
Largest U.S. Companies
Symmetry-Breaking on Crash and Rally Days
Implications for Safety Regulations of Stock Markets
Positive Feedbacks
Feedbacks and Self-Organization in Economics
Hedging Derivatives, Insurance Portfolios, and Rational Panics
"Herd" Behavior and "Crowd" Effect
Behavioral Economics
Empirical Evidence of Financial Analysts 'Herding'
Forces of Imitation
It Is Optimal to Imitate When Lacking Information
Mimetic Contagion and the Urn Models
Imitation from Evolutionary Psychology
The Survival of the Fittest Idea
Gambling Spirits
"Anti-Imitation" and Self-Organization
Why It May Pay to Be in the Minority
El-Farol's Bar Problem
Minority Games
Imitation versus Contrarian Behavior
Cooperative Behaviors Resulting from Imitation
The Ising Model of Cooperative Behavior
Complex Evolutionary Adaptive Systems of Boundedly Rational Agents
Modeling Financial Bubbles and Market Crashes
What Is a Model?
Strategy for Model Construction in Finance
Basic Principles
The Principle of Absence of Arbitrage Opportunity
Existence of Rational Agents
"Rational Bubbles" and Goldstone Modes of the Price "Parity Symmetry" Breaking
Price Parity Symmetry
Speculation as Spontaneous Symmetry Breaking
Basic Ingredients of the Two Models
The Risk-Driven Model
Summary of the Main Properties of the Model
The Crash Hazard Rate Drives the Market Price
Imitation and Herding Drive the Crash Hazard Rate
The Price-Driven Model
Imitation and Herding Drive the Market Price
The Price Return Drives the Crash Hazard Rate
Risk-Driven versus Price-Driven Models
Hierarchies, Complex Fractal Dimensions, and Log-Periodicity
Critical Phenomena by Imitation on Hierarchical Networks
The Underlying Hierarchical Structure of Social Networks
Critical Behavior in Hierarchical Networks
A Hierarchical Model of Financial Bubbles
Origin of Log-Periodicity in Hierarchical Systems
Discrete Scale Invariance
Fractal Dimensions
Organization Scale by Scale: The Renormalization Group
Principle and Illustration of the Renormalization Group
The Fractal Weierstrass Function: A Singular Time-Dependent Solution of the Renormalization Group
Complex Fractal Dimensions and Log-Periodicity
Importance and Usefulness of Discrete Scale Invariance
Existence of Relevant Length Scales
Scenarios Leading
Free shipping on orders over $35*

*A minimum purchase of $35 is required. Shipping is provided via FedEx SmartPost® and FedEx Express Saver®. Average delivery time is 1 – 5 business days, but is not guaranteed in that timeframe. Also allow 1 - 2 days for processing. Free shipping is eligible only in the continental United States and excludes Hawaii, Alaska and Puerto Rico. FedEx service marks used by permission."Marketplace" orders are not eligible for free or discounted shipping.

Learn more about the TextbookRush Marketplace.