NEWSLETTER BANDUNG FE INSTITUTE 20050914
Bandung Fe Institute
September 14 2005
CONTENTS:
01. EVALUATING INDONESIAN COMPOSITE INDEX DROP ON AUGUST 30th 2005
02. The Buletin BFI is going to printhouse
03. Special Issue of Journal of Social Complexity and the ESA
Conference
01. EVALUATING INDONESIAN COMPOSITE INDEX DROP ON AUGUST 30th 2005
a matter of detecting market crash
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Indonesian market is now in a very bullish trend since the beginning of
the year 2005. A lot of fundamental analysis have been proposed, and
mostly related it to the good political climate of the newly elected
government. However, after such a long time in a bullish trend, the
composite index has shown a remarkably drop on August 30th just after
hitting the highest record not more than four weeks before. Most
analysts related this sharp drop to the macroeconomic situation: the
fall of IDR/USD currency rate and the latest oil price hike irritating
the government's consideration in national economic balance. It is
more likely that analysts do not see the obvious prone to crash of the
bullish trend whatsoever.
How is it a market crash happens in its microstructure? In simple
thought, we can say that there are 5 levels of market leading to crash,
namely:
1. the high price depicts a reflection of the optimistic market
2. The attraction to investments with good potential gains then leads
to increasing investments of price appreciation, possibly with leverage
coming from novel sources; often from international investors
3. This in turn attracts less sophisticated investors and, in addition,
leveraging is further developed with small margins, which leads to the
demand for stock rising faster than the rate at which real money is put
in the market.
4. At this stage, the behavior of the market becomes weakly coupled or
practically uncoupled from real wealth production or economic process
(e.g.: the high international energy price and any recent macroeconomic
situation where the optimism of the market exceeds the ability of real
economic potent).
5. As the price is highly bullish, the number of new investors entering
the speculative market decreases and the market enters a phase of
larger nervousness, until a point when the instability is revealed and
the market begin to collapse.
There are at least three methods in complex economics and econophysics
to see this:
- Prediction to Crash: Log-Periodic Precursor
- Pasca-Crash Analysis: Correlation Analysis
- Pasca-Crash Analysis: Financial Tree
The first is made by adopting the analysis elaborated nicely by
econophysicst Didier Sornette in his book, "Why Stock Market Crash:
Critical Events in Complex Financial Systems" published by Princeton
University Press in 2003. For Indonesian readers, this has been
discussed in BFI researchers, Hokky Situngkir and Yohanes Surya, a
working paper implementing to oil price hike.
The second and the third one is used by implementing the analysis of
'stock distances' based on correlation coefficients among stocks.
>From these three methods, we want to see clearly what makes the market
drop in Indonesian Stock Market in the end of August 2005. A very
interesting point of view concluded in the presenting paper is about
how a macroeconomic issue shaped the fluctuative dynamic of stock
market indexes in Indonesia.
You are invited to read the paper presented in this issue. The paper is
written in English and accessible in:
http://www.bandungfe.net/wp2005/2005j.pdf
If you are interested in the method used in the paper, you can browse
BFI working papers or downloading the related reference here:
- On Stock Market Dynamics through Ultrametricity of Minimum Spanning
Tree, Working Paper WPH2005 BFI. URL:
http://www.bandungfe.net/wp2005/2005h.pdf
- Tree of Several Asian Currencies, Working Paper WPI2005 BFI. URL:
http://www.bandungfe.net/wp2005/2005i.pdf
- Mungkinkah muncul Anti-Lonjakan Harga Minyak Dunia? Analisis
Log-Periodik Lonjakan harga September-Oktober 2004 (in Indonesian).
Working Paper WPU2004 BFI. URL:
http://www.bandungfe.net/wp2004/2004u.pdf
02.The Buletin BFI is going to print house
The Buletin BFI is going to be printed soon. The Buletin contained very
soft papers without decreasing any of their scientific content. The
bulletin is planned to hit Indonesian speaking readers with its special
issue: 'UNLEASHED INTRODUCTION TO ECONOPHYSICS' covering almost all
aspects of research in econophysics. The contributors to the Buletin
are all research scholars in BFI and some guest writers. There are also
interesting interviews with some pioneers and prominent researchers in
economics and econophysics. Sponsors and donators are still very
welcomed to make the Buletin happens.
03. Special Issue of Journal of Social Complexity and the ESA
Conference
As has been announced before, the next Journal of Social Complexity
will be in the special theme of "MANAGEMENT IN THE COMPLEXITY AGE". The
refereeing process has been finished and about 7 papers are going to be
printed. Recently, Prof. Marco Novarese, an author in the paper and
also one of the organizers of the 2005 European Economic Science
Foundation (ESA) meeting in Italy this month, suggest some of authors
in the conference to submit interesting papers to the Journal of Social
Complexity. Considering this, the publication of the special issue of
journal will be delayed about one month. However, the special issue of
the journal will be very interesting and potentially important for the
advancement in science and policy making of management and economic.
Interesting readers to the discussions held in ESA Conference may
browse the website in URL: http://esa2005.unipmn.it/
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printed. Recently, Prof. Marco Novarese, an author in the issue and