Earlier this year we pointed up our old friend Didier Sornette's Financial Bubble Experiment, in which he identified four developing bubbles and forecast when they would peak, locking away his predictions in encrypted files which were, to be revealed only when the forecasted bubble peaks passed, on May 1.
Well the date has come and gone and last week Professor Sornette presented the results of the experiment at a press conference:
Professor Didier Sornette from the Department of Management, Technology and Economics (D-MTEC) at ETH Zurich is convinced that financial markets are not just random. Consequently, his Financial Crisis Observatory conducted a daring experiment to prove that you can forecast financial bubbles. Today, Professor Sornette presented the results of the experiment at a press conference.
Didier Sornette, Professor of Entrepreneurial Risks at ETH Zurich, has two hypotheses: firstly, bubbles can be diagnosed in real time before they end; secondly, the termination of these bubbles can be bracketed using probabilistic forecasts with a reliability better than chance. As a controversial debate surrounds the two hypotheses and proof was needed, Professor Sornette and his team from the Financial Crisis Observatory (FCO) launched an extraordinary experiment: they forecast that four selected assets would form a bubble in the following six months, and when this would happen. To guarantee the seriousness and integrity of the experiment, the forecasts were announced and encoded.
As yet, nobody has any reliable quantitative methods to ascertain whether the market or a particular asset is in a bubble state. One problem here is that none of the various economic theories and models provides a universal and quantifiable definition of a bubble. New, multidisciplinary approaches are therefore needed in the face of the complexity of the financial market. Consequently, Didier Sornette works with a portfolio of methods from very different fields, such as economics, physics and mathematics....
You might also be interested in:
- Didier's Webpage at ETH
- The Financial Crisis Laboratory at ETH
PhysOrg
Finance Focus
