EQUATIONS that simulate the activities of traders and investors are coming strikingly close to predicting stock market swings.
Didier Sornette and Wei-Xing Zhou at the University of California, Los Angeles, studied the Standard & Poor’s 500 stock index. Since August 2000, the index’s value has been sliding downwards, oscillating as it goes.
The researchers modelled this pattern, which they say stems from the herding behaviour of investors (Â鶹´«Ã½, 7 December 2002, p 16). Their first attempts predicted when crashes would happen, but not how steep they would be. Now they have refined the model to predict the crashes’ sharpness…
