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Abstract

We call attention against what seems to be a widely held misconception according to which large crashes are the largest events of distributions of price variations with fat tails. We demonstrate on the Dow Jones Industrial Average that with high probability the three largest crashes in this century are outliers. This result supports the suggestion that large crashes result from specific amplification processes that might lead to observable pre-cursory signatures.

PACS. 01.75.+mScience and society[:AND:]02.50.-rProbability theory, stochastic processes, and statistics - 89.90.+nOther areas of general interest to physicists

Received and Revised: 30 November 1997 / Accepted: 8 December 1997