Central European Journal of Physics

, Volume 4, Issue 1, pp 58–72 | Cite as

Stock mechanics: Predicting recession in S&P500, DJIA and NASDAQ

  • Çağlar Tuncay
Article

Abstract

Proposed in this paper is an original method assuming potential and kinetic energies for prices and for the conservation of their sum that has been developed for forecasting exchanges. Connections with a power law are shown. Semiempirical applications on the S&P500, DJIA, and NASDAQ predict a forthcoming recession in them. An emerging market, the Istanbul Stock Exchange index ISE-100 is found harboring a potential to continue to rise.

Keywords

Potential and kinetic energy equations of motion power law oscillations crashes portfolio growths 

PACS (2006)

89.65.Gh 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. [1]
    P. Gopikrishnan, V. Plerou, X. Gabaix and H.E. Stanley: “Statistical properties of share volume traded in financial markets”, Phys. Rev. E, Vol. 62, (2000), pp. 4493–4496.CrossRefADSGoogle Scholar
  2. [2]
    J-P. Bouchaud and R. Cont: “A Langevin approach to stock market fluctuations and crashes”, Preprint: arXiv:cond-mat/9801279; Eur. Phys. J. B, Vol. 6, (1998), pp. 543–550.CrossRefADSGoogle Scholar
  3. [3]
    P. Gopikrishnan, V. Plerou, L.A.N. Amaral, M. Meyer and H.E. Stanley: “Scaling of the Distribution of Fluctuations of Financial Market Indices”, Phys. Rev. E, Vol. 60, (1999), pp. 5305–5316.CrossRefADSGoogle Scholar
  4. [4]
    R. Cont and J.-P. Bouchaud: “Herd behavior and aggregate fluctuations in financial markets”, Macroeconomic Dynamics, Vol. 4, (2000), pp. 170–196.CrossRefGoogle Scholar
  5. [5]
    Ç. Tuncay: “Stock mechanics: a classical approach”, Preprint: arXiv:physics/0503163.Google Scholar
  6. [6]
    K. Ide and D. Sornette: “Oscillatory Finite-Time Singularities in Finance, Population and Rupture”, Phys. A, Vol. 307, (2002), pp. 63–106; Preprint: arXiv:cond-mat/0106047.CrossRefMathSciNetGoogle Scholar
  7. [7]
    D. Sornette and K. Ide: “Theory of self-similar oscillatory finite-time singularities in Finance, Population and Rupture”, Int. J. Mod. Phys. C, Vol. 14(3), (2002), pp. 267–275; Preprint: arXiv:cond-mat/0106054.ADSGoogle Scholar
  8. [8]
    V. Pareto: Cours d”economie politique reprinted as a volume of Oeuvres Compl‘etes, Droz, Geneva, 1965.Google Scholar
  9. [9]
    G. Zipf: Human Behavior and the Principle of Last Effort, Addison-Wesley, Cambridge, MA, 1949.Google Scholar
  10. [10]
    H. Saleur, C.G. Sammis and D. Sornette: “Discrete scale invariance, complex fractal dimensions, and log-periodic fluctuations in seismicity”, J. Geophys. Res., Vol. 101, (1996), pp. 17661–17677.CrossRefADSGoogle Scholar
  11. [11]
    W.I. Newman, D.L. Turcotte and A.M. Gabrielov: “Log-periodic behavior of a hierarchical failure model with applications to precursory seismic activation”, Phys. Rev. E, Vol. 52(5), (1995), pp. 4827–4835.CrossRefADSMathSciNetGoogle Scholar
  12. [12]
    J.A. Feigenbaum and P.G.O. Freund: “Discrete Scaling in Stock Markets Before Crashes”, Int. J. Mod. Phys. C, Vol. 10, (1996), pp. 3737–3745; Preprint: arXiv:cond-mat/9509033.CrossRefADSGoogle Scholar
  13. [13]
    D. Sornette, A. Johansen and J-P Bouchaud: “Stock market crashes, Precursors and Replicas”, J. Phys. I, Vol. 6, (1996), pp. 167–175; Preprint: arXiv:cond-mat/9510036.CrossRefGoogle Scholar
  14. [14]
    D. Sornette: “Discrete scale invariance and complex dimensions”, Phys. Rep., Vol. 297, (1998), pp. 239–270; Preprint: arXiv:cond-mat/cond-mat/9707012.CrossRefMathSciNetGoogle Scholar
  15. [15]
    J.-P. Bouchaud: “Power laws in economics and finance: some ideas from physics”, Quant. Fin., Vol. 1, (2001), pp. 105–112.CrossRefGoogle Scholar
  16. [16]
    X. Gabaix, P. Gopikrishnan, V. Plerou and H.E. Stanley: “A theory of power-law distributions in financial market fluctuations”, Nature, Vol. 423, (2003), pp. 267–270.CrossRefADSGoogle Scholar
  17. [17]
    X. Gabaix: “Zipf's Law for Cities”, Quart. J. Econom., Vol. 114(3), (1999), pp. 739–767.CrossRefMATHGoogle Scholar
  18. [18]
    Y. Huang, H. Saleour, C.G. Sammis and D. Sornette: “Precursors, aftershocks, criticality and self-organized criticality”, Europhys. Lett., Vol. 41, (1998), pp. 43–48; Preprint: arXiv:cond-mat/9612065.CrossRefADSGoogle Scholar
  19. [19]
    B.D. Malamud, G. Morein and D.L. Turcotte: “Forest fires: An example of self-organized critical behavior”, Science, Vol. 281, (1998), pp. 1840–1842.CrossRefADSGoogle Scholar
  20. [20]
    S. Drożdż, F. Ruf, J. Speth and M. Wójcík: “Imprints of log-periodic self-similarity in the stock market”, Eur. Phys. J. B, Vol. 10, (1999), pp. 589–593.CrossRefADSGoogle Scholar
  21. [21]
    S. Drożdż, F. Grümmer, F. Ruf and J. Speth: “Log-periodic self-similarity: an emerging financial law?”, Physica A, Vol. 324, (2003), pp. 174–182.CrossRefADSGoogle Scholar
  22. [22]
    J.-P. Bouchaud, M. M'ezard and M. Potters: “Statistical properties of stock order books: empirical results and models”, Quant. Fin., Vol. 2, (2002), pp. 251–256.CrossRefGoogle Scholar
  23. [23]
    A. Johansen and D. Sornette: “Modeling the stock market prior to large crashes”, Eur. Phys. J. B, Vol. 9, (1999), pp. 167–174.CrossRefADSGoogle Scholar
  24. [24]
    D. Sornette and A. Johansen: “Large financial crashes”, Physica A, Vol. 245, (1997), pp. 411–422l; Preprint: arXiv:cond-mat/9704127.CrossRefADSMathSciNetGoogle Scholar
  25. [25]
    A. Johansen, O. Ledoit and D. Sornette: “Crashes as critical points”, Int. J. Theor. Appl. Finance, Vol. 3, (2000), pp. 219–255.Google Scholar
  26. [26]
    W-X. Zhou and D. Sornette: “Renormalization group analysis of the 2000-2002 anti-bubble in the US S&P 500 index: Explanation of the hierarchy of 5 crashes and prediction”, Physica A, Vol. 330, (2003), pp. 584–604; Preprint arXiv:physics/0301023.CrossRefADSMathSciNetGoogle Scholar
  27. [27]
    D. Sornette and W-X. Zhou: “The US 2000-2002 market descent: How much longer and deeper?”, Quant. Fin., Vol. 2, (2002), pp. 468–481.CrossRefGoogle Scholar
  28. [28]
    A. Johansen, O. Ledoit and D. Sornette: “Crashes as critical points”, Int. J. The. Appl. Finance, Vol. 3, (2000), pp. 219–255.Google Scholar
  29. [29]
    W-X. Zhou and D. Sornette: “Evidence of a worldwide stock market log-periodic anti-bubble since mid-2000”, Physica A, Vol. 330, (2002), pp. 543–583; Preprint:arXiv:cond-mat/0212010.CrossRefADSMathSciNetGoogle Scholar
  30. [30]
    J. Laherrèere and D. Sornette: “Stretched exponential distributions in nature and economy: ”fat tails” with characteristic scales”, Eur. Phys. J. B, Vol. 2, (1998), pp. 525–539.CrossRefADSGoogle Scholar
  31. [31]
    A. Johansen and D. Sornette: “Critical ruptures”, Eur. Phys. J. B, Vol. 18, (2000), pp. 163–181; Preprint: arXiv:cond-mat/0003478.CrossRefADSGoogle Scholar
  32. [32]
    For many other articles of D. Sornette see also several issues of the journal Eur. Phys. J. B and search Preprint: http://xxx.lanl.gov/abs/cond-mat/.
  33. [33]
    J-P. Bouchaud: “Power laws in economics and finance: some ideas from physics”, Quant. Fin., Vol. 1, (2001), pp. 105–112.CrossRefGoogle Scholar
  34. [34]
    For detailed information about NYSE shares and indices, URL: http://biz.yahoo.com/i/.
  35. [35]
    For detailed information about ISE, URL: http://www.imkb.gov.tr/sirket/sirketler_y_2003.thm.

Copyright information

© Central European Science Journals Warsaw and Springer-Verlag Berlin Heidelberg 2006

Authors and Affiliations

  • Çağlar Tuncay
    • 1
  1. 1.Department of PhysicsMiddle East Technical UniversityAnkaraTurkey

Personalised recommendations