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RECURRENCE PLOT AND RECURRENCE QUANTIFICATION ANALYSIS TECHNIQUES FOR DETECTING A CRITICAL REGIME.

EXAMPLES FROM FINANCIAL MARKET INIDICES

A. FABRETTI
M. AUSLOOS

SUPRATECS, B5, University of Liège, B-4000 Liège, Euroland

Department of Mathematics for Economy, Insurances and Finance Applications, University of Roma 1, La Sapienza I-00100 Rome, Italy

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and

M. AUSLOOS

SUPRATECS, B5, University of Liège, B-4000 Liège, Euroland

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https://doi.org/10.1142/S0129183105007492Cited by:53

Abstract

Recurrence Plot (RP) and Recurrence Quantification Analysis (RQA) are signal numerical analysis methodologies able to work with nonlinear dynamical systems and nonstationarity. Moreover, they well evidence changes in the states of a dynamical system. We recall their features and give practical recipes. It is shown that RP and RQA detect the critical regime in financial indices (in analogy with phase transition) before a bubble bursts, whence allowing to estimate the bubble initial time. The analysis is made on DAX and NASDAQ daily closing price between January 1998 and November 2003. DAX is studied in order to set-up overall considerations, and as a support for deducing technical rules. The NASDAQ bubble initial time has been estimated to be on 19 October 1999.

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Received 22 November 2004

Revised 7 December 2004

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RECURRENCE PLOT AND RECURRENCE QUANTIFICATION ANALYSIS TECHNIQUES FOR DETECTING A CRITICAL REGIME.

Abstract

References

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