The log-periodic-AR(1)-GARCH(1,1) model for financial crashes

DOI10.1140/EPJB/E2008-00085-1MaRDI QIDQ978701zbMATH OpenOpenAlexFDO

Authors L. Gazola, R. Riera, Cristiano Fernandes, Adrian Pizzinga

Publication date 25 June 2010

Published in The European Physical Journal B. Condensed Matter and Complex Systems (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0801.4341

Mathematics Subject Classification ID

Statistical methods; economic indices and measures (91B82) Statistical methods; risk measures (91G70) Applications of statistical and quantum mechanics to economics (econophysics) (91B80)

Abstract: This paper intends to meet recent claims for the attainment of more rigorous statistical methodology within the econophysics literature. To this end, we consider an econometric approach to investigate the outcomes of the log-periodic model of price movements, which has been largely used to forecast financial crashes. In order to accomplish reliable statistical inference for unknown parameters, we incorporate an autoregressive dynamic and a conditional heteroskedasticity structure in the error term of the original model, yielding the log-periodic-AR(1)-GARCH(1,1) model. Both the original and the extended models are fitted to financial indices of U. S. market, namely S&P500 and NASDAQ. Our analysis reveal two main points: (i) the log-periodic-AR(1)-GARCH(1,1) model has residuals with better statistical properties and (ii) the estimation of the parameter concerning the time of the financial crash has been improved.

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(8)

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• Johansen-Sornette hierarchical model of financial crashes and its ultrametric generalization
• Early warnings indicators of financial crises via auto regressive moving average models
• Bayesian log-periodic model for financial crashes
• Detecting log-periodicity in a regime-switching model of stock returns
• The JLS model with ARMA/GARCH errors
• Forecasting price of financial market crash via a new nonlinear potential GARCH model
• Crash forecasting in the Korean stock market based on the log-periodic structure and pattern recognition

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