author={Didier Sornette},
The young science of complexity, which studies systems as diverse as the human body, the earth and the universe, offers novel insights on the question raised in the title. The science of complexity explains large-scale collective behavior, such as well-functioning capitalistic markets, and also predicts that financial crashes and depressions are intrinsic properties resulting from the repeated nonlinear interactions between investors. Applying concepts and methods from complex theory and… Expand
Explaining What Leads Up to Stock Market Crashes: A Phase Transition Model and Scalability Dynamics
Mathematical descriptions of financial markets with respect to the efficient market hypothesis (EMH) and fractal finance are now equally robust but EMH still dominates. EMH and other currentExpand
A behavioral approach to instability pathways in financial markets
The authors show that the graph-based approach is helpful to timely recognize phases of increasing instability that can drive the system to a new market configuration. Expand
Physics and Financial Economics (1776-2014): Puzzles, Ising and Agent-Based Models
This short review presents a selected history of the mutual fertilization between physics and economics, from Isaac Newton and Adam Smith to the present. The fundamentally different perspectivesExpand
Response Functions to Critical Shocks in Social Sciences
It is suggested that critical events are able to reveal pre-existing "cracks" because they probe the social cohesion which is an indicator and predictor of future evolution of the system, and in some cases they foreshadow a bifurcation. Expand
It takes all sorts : the complexity of prediction markets
Prediction markets represent a great tool to harness the wisdom of the crowd and, for this reason, they are used to provide accurate forecasts on great variety of events. However, current models ofExpand
  • 2009
179 Економіка і регіон No 1 (20) 2009 ПолтНТУ At the same time, a prediction of crashes still remains an unsolved problem. In the article about the world financial crisis, that has been printed inExpand
Bubble Diagnosis and Prediction of the 2005-2007 and 2008-2009 Chinese Stock Market Bubbles
By combining (i) the economic theory of rational expectation bubbles, (ii) behavioral finance on imitation and herding of investors and traders and (iii) the mathematical and statistical physics ofExpand
Bubble Diagnosis and Prediction of the 2005-2007 and 2008-2009 Chinese Stock Market Bubbles
By combining (i) the economic theory of rational expectation bubbles, (ii) behavioral finance on imitation and herding of investors and traders and (iii)the mathematical and statistical physics ofExpand
A simple mechanism for financial bubbles: time-varying momentum horizon
Building on the notion that bubbles are transient self-fulfilling prophecies created by positive feedback mechanisms, we construct the simplest continuous price process whose expected returns andExpand
The conundrum of stock versus bond prices
Abstract In a general way, stock and bond prices do not display any significant correlation. Yet, if we concentrate our attention on the specific episodes marked by a crash followed by a rebound,Expand


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"Expand
Endogenous Versus Exogenous Crashes in Financial Markets
We perform an extended analysis of the distribution of drawdowns in the two leading exchange markets (US dollar against the Deutsmark and against the Yen), in the major world stock markets, in theExpand
Why Stock Markets Crash: Critical Events in Complex Financial Systems
Why Stock Markets Crash: Critical Events in Complex Financial Systems, by Didier Sornette, 2003, Princeton, NJ: Princeton University Press Consider the following events: a pressure tank within aExpand
The US 2000‐2002 market descent: How much longer and deeper?
Abstract A remarkable similarity in the behaviour of the US S&P500 index from 1996 to August 2002 and of the Japanese Nikkei index from 1985 to 1992 (11 year shift) is presented, with particularExpand
Crashes at Critical Points
We study a rational expectation model of bubbles and crashes. The model has two components: (1) our key assumption is that a crash may be caused by local self-reinforcing imitation between noiseExpand
Evidence of a worldwide stock market log-periodic anti-bubble since mid-2000
Following our investigation of the USA Standard and Poor index anti-bubble that started in August 2000 (Quant. Finance 2 (2002) 468), we analyze 38 world stock market indices and identify 21 “bearishExpand
Significance of Log-Periodic Precursors to Financial Crashes
We clarify the status of log-periodicity associated with speculative bubbles preceding financial crashes. In particular, we address Feigenbaum's [2001] criticism and show how it can be rebuked.Expand
Predicting Financial Crashes Using Discrete Scale Invariance
We present a synthesis of all the available empirical evidence in the light of recent theoretical developments for the existence of characteristic log-periodic signatures of growing bubbles in aExpand
Endogenous versus exogenous shocks in systems with memory
Systems with long-range persistence and memory are shown to exhibit different precursory as well as recovery patterns in response to shocks of exogenous versus endogenous origins. By endogenous, weExpand
Predictability of catastrophic events: Material rupture, earthquakes, turbulence, financial crashes, and human birth
  • D. Sornette
  • Computer Science, Physics
  • Proceedings of the National Academy of Sciences of the United States of America
  • 2002
We propose that catastrophic events are “outliers” with statistically different properties than the rest of the population and result from mechanisms involving amplifying critical cascades. WeExpand