Renormalization Group Analysis of October Market Crashes

TL;DR

This paper applies a self-similar renormalization group analysis to historical market crashes, highlighting their analogy to critical phenomena and demonstrating the approach's effectiveness on major crises.

Contribution

It introduces a novel application of renormalization group analysis to model and understand stock market crashes as critical phenomena.

Findings

Successfully models October 1929, 1987, and 1997 crashes

Highlights the analogy between market crashes and critical phenomena

Provides a framework for analyzing market crises using self-similar analysis

Abstract

The self-similar analysis of time series, suggested earlier by the authors, is applied to the description of market crises. The main attention is payed to the October 1929, 1987 and 1997 stock market crises, which can be successfully treated by the suggested approach. The analogy between market crashes and critical phenomena is emphasized.