Patterns of speculation A study in observational econophysics 1st Edition by Bertrand Roehner 0521802636 9780521802635

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ISBN 10: 0521802636 

ISBN 13: 9780521802635

Author: Bertrand M. Roehner

The main objective of this 2002 book is to show that behind the bewildering diversity of historical speculative episodes it is possible to find hidden regularities, thus preparing the way for a unified theory of market speculation. Speculative bubbles require the study of various episodes in order for a comparative perspective to be obtained and the analysis developed in this book follows a few simple but unconventional ideas. Investors are assumed to exhibit the same basic behavior during speculative episodes whether they trade stocks, real estate, or postage stamps. The author demonstrates how some of the basic concepts of dynamical system theory, such as the notions of impulse response, reaction times and frequency analysis, play an instrumental role in describing and predicting speculative behavior. This book will serve as a useful introduction for students of econophysics, and readers with a general interest in economics as seen from the perspective of physics.

Patterns of speculation A study in observational econophysics 1st Table of contents:

Part I Econophysics

1 Why econophysics?

1 Newton?s apple paradigm revisited

1.1 Newton?s apple

1.2 An economic parallel

2 Simple phenomena first

2.1 Two-body problems

2.2 Complexity classification

2.3 The role of time: Simon?s bowl metaphor

2.4 Simple aspects of complex systems

3 From plausible reasons to regularities

3.1 The pot of yoghurt paradigm

3.2 Plausible causes versus scientific explanations

3.3 Regularities

3.4 Circumstantial causes versus structural factors

3.5 Models need accurate empirical targets

4 Conclusion

4.1 The primacy of observation

4.2 ?Modest goals?

4.3 Clusters of events and comparative analysis

2 The beginnings of econophysics

1 Pre-econophysics

1.1 Pre-econophysicists

1.1.1 Qu?telet (1796?1874)

1.1.2 Walras (1834?1910)

1.1.3 Pareto (1848?1923)

1.1.4 Allais (1911?)

1.1.5 Other pre-econophysicists

1.2 Assessment of pre-econophysics

2 Institutional econophysics

2.1 Idiosyncrasies of economic journals

2.2 The beginnings of econophysics

2.3 Neurophysics

2.4 The fractal revolution

2.5 Formation of an econophysical community

2.6 A personal note

2.7 The future of econophysics

Part II How do markets work?

3 Social man versus homo economicus

1 The social man and the Zeitgeist

1.1 Connection between fast growth sectors and Zeitgeist

1.1.1 Slave trade

1.1.2 X-ray medical instruments

1.2 Quantitative measure of the role of the Zeitgeist

1.3 Ways and means of the Zeitgeist

2 Regularities

2.1 The search for uniformities and regularities

2.2 Examples of speculative peaks

2.2.1 Commodity markets

2.2.2 Land and real estate

2.2.3 Postage stamps and antiquarian books

2.2.4 Share prices

2.2.5 Conclusion

4 Organization of speculative markets

1 Trends

1.1 Concentration

1.1.1 Role of declining communication costs

1.1.2 Productivity increase

1.2 The thorny question of commission rates

2 Trading techniques

2.1 Short selling, futures, options

2.1.1 A ?not so simple? transaction

2.1.2 Buying on margin

2.1.3 Options

2.1.4 How options can be used for hedging purposes

2.2 How to create a successful financial product?

2.3 Protection against market crashes

2.3.1 The specialist system

2.3.2 Investment funds

2.3.3 Emergency procedures

2.3.4 Stock options

2.4 Sources of instability: the boomerang effect

3 Organization of the banking system

3.1 The United States

3.2 Canada versus the United States

4 Time series for stock prices and bankruptcies

4.1 Stock prices

4.2 Downgrades, failure rate, and suspensions

Part III Regularities in speculative episodes

5 Collective behavior of investors

1 High-tech booms

1.1 The high-tech boom of the automobile industry

1.2 The phase of ?natural selection?

1.3 High-tech booms backed by venture capital

2 Flight to safety

2.1 Grain panics

2.2 Nineteenth-century banking panics

2.3 Relationship with grain crisis

2.4 ?Deliver us from inflation?

2.4.1 Postage stamps

2.4.2 Antiquarian books

2.4.3 Precious metals

2.4.4 Conclusion

2.5 Flight to quality in equity markets

3 To sell or not to sell?

3.1 Formulation of the problem

3.2 Some methodological points

3.3 Short-term response (weekly fluctuations)

3.4 Long-term response (yearly fluctuations)

3.5 Effect of mutual funds purchases on stock prices

3.6 Conclusion

4 Connection between property and stock markets

4.1 Impact of property crashes on economic growth

4.2 Delay in the response of real estate markets

4.3 The connection between property and stock bubbles

4.3.1 United States

4.3.2 France

6 Speculative peaks: statistical regularities

1 A ?thermometer? of speculative frenzy

1.1 Real estate

1.2 Bonds

2 Shape of price peaks

2.1 Empirical evidence for asymmetry parameters

2.2 Mathematical description of the shape of peaks

2.3 Empirical evidence for shape parameters

3 Stock market crashes

3.1 When?

3.2 How?

3.2.1 The rebound effect

3.2.2 ?Frightening Fridays?

3.3 Overnight crashes

3.4 Lawsuits in the wake of market crashes

4 Trading volume

4.1 Volume at the level of individual stocks

4.2 Volume movements at market level

4.2.1 Day traders

4.2.2 Decimalization

5 Economic consequences of stock market collapses

5.1 Consumer confidence

5.1.1 Consumer confidence estimates

5.1.2 Consumer confidence and consumption

5.1.3 How stock prices affect consumer confidence

5.2 Relationship between stock price levels and commission rates

5.3 Effect on the distribution of income

5.3.1 United States (1920?1945)

5.3.2 United Kingdom (1970?1980)

5.3.3 Japan (1976?1998)

5.3.4 Comparison

Part IV Theoretical framework

7 Two classes of speculative peaks

1 Speculative peaks: two illustrative examples

1.1 Wheat price peaks

1.2 Real estate prices

2 The price multiplier criterion

3 The ensemble dispersion criterion

4 Two classes

5 Bond market

6 Differences in response times

6.1 Dispersion of peak times

6.2 Relationship between amplitude and response time

8 Dynamics of speculative peaks: theoretical framework

1 Main ideas

1.1 A comparative perspective

1.2 Shock versus permanent monitoring

1.3 Users and speculators

1.4 Transaction friction

1.5 Agents and markets form a compound

2 Implementation

2.1 Recapitulation of empirical regularities

2.2 Dynamic equations: first order

2.3 Dynamic equations: second order

2.4 Dynamic equations: higher orders

2.5 Light or heavy damping?

3 Implications

3.1 Amplitude versus duration of the ascending phase

3.2 Peak amplitude and proportion of investors

3.3 Synchronization effects

Appendix A: Green?s function for a fourth-order equation

9 Theoretical framework: implications

1 The resilience effect

1.1 Description

1.2 Interpretation

1.3 Statistical evidence

2 Breakdown of scaling

2.1 First-order process

2.2 Second-order process

3 Ensemble coefficient of variation

4 The stochastic spatial arbitrage model for U-class goods

5 Perspectives

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