Testing the Stability of the 2000-2003 US Stock Market "Antibubble"

TL;DR

This paper investigates the stability of the US stock market antibubble from 2000 to 2003, analyzing regime shifts and log-periodic behavior to understand market dynamics during this period.

Contribution

It introduces the analysis of regime switching in the US stock market antibubble using second-order log-periodicity, extending previous models of market behavior.

Findings

Evidence of a transition in log-periodicity indicating regime change.

Detection of second-order log-periodic behavior in the antibubble.

Implications for predicting future market movements.

Abstract

Since August 2000, the stock market in the USA as well as most other western markets have depreciated almost in synchrony according to complex patterns of drops and local rebounds. In \cite{SZ02QF}, we have proposed to describe this phenomenon using the concept of a log-periodic power law (LPPL) antibubble, characterizing behavioral herding between investors leading to a competition between positive and negative feedbacks in the pricing process. A monthly prediction for the future evolution of the US S&P 500 index has been issued, monitored and updated in \cite{urlprediction}, which is still running. Here, we test the possible existence of a regime switching in the US S&P 500 antibubble. First, we find some evidence that the antibubble has exhibited a transition in log-periodicity described by a so-called second-order log-periodicity. Second, >...