Physicists prophesy a financial crash like never before
Multifractal statistical analysis of the stock market index S&P 500 published by scientists from the Institute of Nuclear Physics of the Polish Academy of Sciences in Krakow predict a financial crash of unprecedented magnitude. According to forecasts, the collapse of financial markets will occur around the mid-2020s.
According to physicists from IFJ PAN in the pages of the journal „Complexity”, starting in the mid-2020s, a global financial meltdown like never before in history is highly likely. Previous events such as Black Monday, the bursting of the Internet bubble and the collapse of Lehman Brothers will seem insignificant stumbles next to it – assessed the scientists in a communiqué published on the IFJ PAN website.
The researchers analyzed the rotrong economic data m.in. daily quotations of the Standard index & Poor 500 over the period from January 1950 to December 2016. S&The P 500 is the largest stock market index in the world and takes into account the 500 largest companies, whichore are global in nature.
As the Krakow researchers emphasize, their goal was not to spin catastrophic predictions, but to provide a credible representation of issues related to the occurrence of the effect of theoIn multifractal, i.e., one in which theorych to see self-similarity, roThe different parts of the examined structure have to be enlarged with rowith a similar speed. Researchers zwrocularly, they paid attention to changes in the Hurst exponent, calculated for the S&P 500 based on multifractal spectra obtained during analysis.
„The Hurst exponent can take values from 0 to 1 and reflects the degree to which a system is susceptible to trend changes. When it is rowny 0.5, the fluctuating quantity under study has the same probability of changing on the plus side as on the minus side in the next measurement. Values below 0.5 signal a greater propensity for directional alternationoin fluctuation: an increase increases the probability of a decrease, or vice versa, which, in the context of financialow can be interpreted as a symptom of nervousness. Values above 0.5 indicate the persistent nature of the changes and the tendency of the system to build a trend. After an increase, we then have a higher probability of another increase, and after a decrease – larger subsequent decline” – We read on the pages of IFJ PAN.
A mature and stable market is one where the Hurst exponent is rowny 0.5 or shows little deviation from that value. This exponent for the S index&P 500 starts at 0.5. On October 19, 1987, a breakdown occurs – The so-called. Black Monday. WoAt that time, the graph of the exponent decreases slightly, but for the next decade it maintains a fairly constant.
A clear decline appears at the turn of the centuryow. In 2000, the so-called “low” broke. internet bubble. Then the Hurst exponent stabilizes again, however, on the krotier period. Already at the end of the first decade, it suddenly begins to rise rapidly, only to collapse after the bankruptcy of Lehman Brothers in 2008. „Since then, the Hurst exponent has not only not returnedoIt crashed around the value of 0.5, but in the last decade it quite clearly and steadily went even below a particularolnly disturbing value of 0.4” – demonstrated by Krakow scientists.
– What roAlso striking are changes in the Hurst exponent for the S index&P 500, are the shortening intervals between successive crashes and the fact that after each collapse the index never returned to its original level. Here we have a clear signal that the nervousness of the world market has been growing all the time, for decades, regardless of the changing people, entityoin economic or technology – said quoted in the press release prof. Stanisław Drożdż of the IFJ PAN and the Cracow University of Technology.
This assessment seems to supportoThe Hurst exponent was not only not in line with the earlier work of the researchers from the IFJ PAN published in the „Physica A: Statistical Mechanics and its Applications" in 2003. The scientists presented in the publication a graph of logarithm changes from the index S&P 500 starting in 1800, and the values before the introduction of the index are reconstructed from historical data.
„The zigzag curve bent along a sine wave of increasing frequency, rising more and more dynamically towards an asymptote located around 2025. Each successive crash here was preceded by smaller fluctuations, peculiar minicrases, whichore called precursors. Many precursorow had their – even smaller – precursors, thus demonstrating aob a certain self-similarity” – reads the announcement from IFJ PAN.
As admitted by prof. Yeast, an analogous self-similar relationship may also operate on larger time scales, in which case the earlier crashes would only be precursors to a much larger and more threatening event. – When a process with similar dynamics appears in physics, mowe are talking about a phase transition of the second kind, such as the appearance or disappearance of magnetic properties in a magnetic material near the Curie temperature – explained prof. Yeast.
However, are such predictions reliable? The world of physics and mathematics is rot financial worldow. „The laws and mathematical models constructed within physics are efficient and relatively uncomplicated m.in. due to the intrinsic simplicity and invariability of the objectow, whichowhich they apply. Financial markets are much more complex in nature. Their participants are variable: they remember, they learn, they can react zaroboth logically and emotionally. There is no missing exampleoIn proving that when a process with similar dynamics appears in theod significant number of participantsoknowledge of some law with predictive power spreads in the market, the market rapidly changes, and the detected regularity disappears. Will the same be the case with the coming hypercratch?” – study authors point out.
Unfortunately, it’s not clear what would have to affect the global market to prevent a meltdown. Professor Drozdz acknowledged that if there is a spectacular collapse, the authors of the study will probably be the only ones whoseoers will not lose out as they prove the power of their multifractal statistical tools.- Personally, however, I would prefer that it does not happen. When this happens and the hypercrash does not come, we are still left with the quite acceptable interpretation that our forecast was. correct, but with the press release we influenced the behavior of participantsoin the marketow and, no co¿, we just saved the world! – noted with a slight wink prof. Yeast.