Wednesday, August 01, 2007

Stock fluctuations lead to a crash?

With crazy days like today I am reminded of a paper I read recently where a group studied the price fluctuations leading up to the market crash of 87. They found that abnormal volatility on the 10 minute scale increased to a critical value just before the crash. The paper was published in the top physics journal, Physical Review Letters. Perhaps the most interesting aspect of the paper is that they found a connection between the math that describes a market crash and the math that describes a phase transition (i.g. a solid that melts into liquid).

It doesn't get more volatile than today!

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