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Eh, economics is a pseudoscience.

I don't necessarily disagree with your opinion given all the mark to fantasy models that wall street ran that showed none of this economic mess was going to happen. Then you have the politics and ideology that makes things worse. Nevertheless, economies are governed by systems and again the study of systems is scientific in itself whether your studying a ponzi economic system or not.

Anyway, despite the ridicule it seems these physicists are on to something afterall as noted below and with my initial post...

The last sentence is the caveat of course. Predicting the stock market and make a ton of cash is not gonna happen since everyone will start factoring in the predicative power of the model, and selling out of late-stage bull markets earlier. Predicting a bubble burst is much easier since bubbles always burst although Greenspan and Bernanke would disagree...they would rather let the taxpayer clean them up after the fact....while they plan for the next expansion/bubble of course. Too bad the bubble factory is running out of soap...


WITH 20/20 hindsight, financial crashes seem inevitable, yet we never see them coming. Now a team of physicists and financiers have bucked the trend by successfully predicting a steep fall in the Shanghai Stock Exchange.

Their model, which employs concepts from the physics of complex atomic systems, was developed by Didier Sornette of the Financial Crisis Observatory in Zurich, Switzerland, and Wei-Xing Zhou of the East China University of Science and Technology in Shanghai. The idea is that if a plot of the logarithm of the market's value over time deviates upwards from a straight line, it's a clear warning that people are investing simply because the market is rising rather than paying heed to the intrinsic worth of companies. By projecting the trend, the team can predict when growth will become unsustainable and the market will crash.

Sornette, Zhou and colleagues applied their model to the Shanghai Composite Index, which tracks the combined worth of all companies listed on the Shanghai Stock Exchange, the world's second largest. Early this year, the index gained 50 per cent in just four months. In July, the team predicted that the index would start to fall sharply by 10 August ([0907.1827] The Chinese Equity Bubble: Ready to Burst). The index duly began to slide on 4 August, falling almost 20 per cent in the subsequent two weeks.

Anyone hoping to exploit the model for profit should think twice. "If enough investors take action based on our predictions, the evolution of prices will probably be affected," says Zhou.

Physicists successfully predict stock exchange plunge - physics-math - 28 August 2009 - New Scientist