Why Stock Markets Crash¶
Sornette, D. (2003). Why Stock Markets Crash: Critical Events in Complex Financial Systems. Princeton University Press.
Cited by¶
4 citations across 4 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Criticality
- Finance & economics: market crashes modeled as critical transitions; herding behavior near information cascades; bubble formation and bursting as approaches to critical points, a research program Sornette (2003) developed at length in his treatment of stock-market crashes as critical phenomena.
This sourceDevelops financial crashes as critical phenomena: applies critical-point divergences, log-periodic precursors, and cooperative speculation to historical bubbles from tulip mania to the 1929 and 1987 crashes.
Supported in partVerified against the work's full text
The fetched Princeton page is the book's own promotional description and confirms Sornette (2003) presents a general theory of how, why and when stock markets crash, i.e. the critical-phenomena framing, but not the other clauses.
“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.”
- Finance & economics: market crashes modeled as critical transitions; herding behavior near information cascades; bubble formation and bursting as approaches to critical points, a research program Sornette (2003) developed at length in his treatment of stock-market crashes as critical phenomena.
- Dragon King Theory
- Plot the largest historical crashes (1929, 1987, 2008) and they sit above the extrapolated tail line: the worst drawdowns are larger than even the fat-tailed body predicts, forming a separated outlier cluster — the distribution is bimodal at its top.
This sourceModels crashes as the endpoint of imitative-herding positive feedback driving prices to a finite-time singularity. (Print monograph, ISBN 0-691-09630-9.)
Supported in partVerified against the work's full text
The publisher's description supports the frame — a crash as the endpoint of cooperative speculation and an accelerating price rise (a bubble) — but not the faster-than-exponential, finite-time-singularity clause.
“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.””
- Plot the largest historical crashes (1929, 1987, 2008) and they sit above the extrapolated tail line: the worst drawdowns are larger than even the fat-tailed body predicts, forming a separated outlier cluster — the distribution is bimodal at its top.
- Punctuated Equilibrium
- The geophysical stick-slip stress-release pattern is structurally identical to the build-up-and-crash dynamic of speculative bubbles and credit cycles, both carrying power-law energy distributions.
This sourceTreats speculative-bubble build-up-and-crash dynamics with power-law / critical signatures, structurally paralleling geophysical stress release.
- The geophysical stick-slip stress-release pattern is structurally identical to the build-up-and-crash dynamic of speculative bubbles and credit cycles, both carrying power-law energy distributions.
- Tipping Points (or Phase Transitions)
- Market regime shifts have been studied via bifurcation analysis and are now monitored via variance-spike indicators.
This sourceDevelops financial crashes as critical phenomena: applies the formalism of critical-point divergences, log-periodic precursors, and cooperative speculation to historical bubbles from tulip mania to the 1987 and 1929 crashes.
Supported in partVerified against the work's full text
Sornette's book backs the economics half of the claim — financial crises, bubbles, market crashes — but says nothing of adoption cascades, protest thresholds, or segregation.
“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.”
- Market regime shifts have been studied via bifurcation analysis and are now monitored via variance-spike indicators.
Verification¶
Does it exist? Confirmed. This work's ISBN resolves to a registered record, which fixes its identity. That is all it fixes.
Does it back the claim? Read against the text for 3 of 4 citations: 3 supported in part. Each verdict is shown under its citation below, with what in the work backs the sentence.
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