Financial "anti-bubbles": Log-periodicity in gold and Nikkei collapses
We propose that the herding behavior of traders leads not only to speculative bubbles with accelerating over-valuations of financial markets possibly followed by crashes, but also to "anti-bubbles" with decelerating market devaluations following all-time highs. For this, we propose a simple market dynamics model in which the demand decreases slowly with barriers that progressively quench in, leading to a power law decay of the market price characterized by decelerating log-periodic oscillations. We document this behavior of the Japanese Nikkei stock index from 1990 to present and of the gold future prices after 1980, both after their all-time highs. We perform simultaneously parametric and nonparametric analyses that are fully consistent with each other. We extend the parametric approach to the next order of perturbation, comparing the log-periodic fits with one, two and three log-frequencies, the latter providing a prediction for the general trend in the coming years. The nonparametric power spectrum analysis shows the existence of log-periodicity with high statistical significance, with a preferred scale ratio of lambda approximate to 3.5 for the Nikkei index and lambda approximate to 1.9 for the Gold future prices, comparable to the values obtained for speculative bubbles leading to crashes.
bubbles log-periodicity gold nikkei herding behavior crashes log-periodic oscillations criticality stock market scale invariance