Herding Behaviour, Bubbles and Log Periodic Power Laws in Illiquid Stock Markets: A Case Study on the Bucharest Stock Exchange

Tinbergen Institute Discussion Paper 2013-109/VIII

20 Pages Posted: 6 Aug 2013

See all articles by Daniel Traian Pele

Daniel Traian Pele

The Bucharest University of Economic Studies, Department of Statistics and Econometrics; Romanian Academy - Institute for Economic Forecasting

Miruna Marinescu Mazurencu

Academy of Economic Studies, Bucharest

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics; Tinbergen Institute

Date Written: August 5, 2013

Abstract

In this paper we investigate the herding behaviour of the Bucharest Stock Exchange (BSE), using log periodic power laws models.

By analysing the behaviour of the most speculative index from the Bucharest Stock Exchange, the BET-FI, we are able to demonstrate that Log-Periodic Power Law (LPPL) models are a useful tool for recognizing the behaviour of a stock market bubble, and have good abilities for predicting the critical point of a bubble. From our statistical investigation, it turns out that an iterative calibration of the model for the BET-FI regime leads ex post to a rather accurate forecast of the stock market crash in January 2008. Next, by using the same methodology, the anti-bubble regime from 2008 is used for a statistical fit. We then find an accurate “prediction” of the local point of phase transition on 27 October 2008.

Keywords: Log-periodic Power Law, Stock Market Bubble, Crash

JEL Classification: R1

Suggested Citation

Pele, Daniel Traian and Mazurencu, Miruna Marinescu and Nijkamp, Peter, Herding Behaviour, Bubbles and Log Periodic Power Laws in Illiquid Stock Markets: A Case Study on the Bucharest Stock Exchange (August 5, 2013). Tinbergen Institute Discussion Paper 2013-109/VIII, Available at SSRN: https://ssrn.com/abstract=2305945 or http://dx.doi.org/10.2139/ssrn.2305945

Daniel Traian Pele (Contact Author)

The Bucharest University of Economic Studies, Department of Statistics and Econometrics ( email )

Romania

Romanian Academy - Institute for Economic Forecasting ( email )

Calea 13 Septembrie nr. 13
Bucharest, 050711
Romania

Miruna Marinescu Mazurencu

Academy of Economic Studies, Bucharest ( email )

6, Romana Square, District 1
Bucharest, 010374
Romania

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 20 4446091 (Phone)
+31 20 4445611 (Fax)

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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