"Anti-Bubbles"

Speculative financial bubbles occur when assets or whole markets start becoming overvalued due to too optimistic expectations of investors. Often followed by bubbles, there is also a phenomenon called "anti-bubble" associated with the situation where assets are massively undervalued (1999, Johansen and Sornette).

Source:Yahoo! Finance UK & Ireland

One prominent example of anti-bubble is the Japanese Nikkei stock index since the end of 1980s. The graph above depicts a strong increase of Nikkei during the late 1980s followed by, first, a crash and then by decelerating market devaluations which can be viewed as an "anti-bubble". The difference between crashes and "anti-bubbles" is that an "anti-bubble" is a statistically time-symmetric process with the respect to a critical time (1999, Johansen and Sornette). In other words, it is the reverse process of the growing of a speculative bubble that takes the same time.

Speculative bubbles occur because the feedback from price increases gives rise to an increased enthusiasm of investors and hence increased prices. The media plays here an important role. It propagates the information to more investors who then make subjective judgments about investments boosting the bubble even further. All this contributes to an increase in value (2001, Shiller). Anti-bubbles appear because the same process takes place with the only difference that pessimism is the driving force about future performance and not optimism.

Many other examples such as gold anti-bubble during the 1980s and anti-bubble of 2000 are events that had a great influence at the global economy. However, only little attention is paid to them in the academic literature. Recognizing and considering anti-bubbles in market analyses could help to gain deeper understanding of current market conditions and thus help to make better investment decisions.