Econophysicist Predicts Date of Chinese Stock Market Collapse

The Shanghai Composite Index was supposed to burst before July 27 but didn't. A few days after that deadline, however, it dropped by 20 percent. Coincidence ?.

Last month, we looked at a prediction that the Shanghai Composite stock market index was about to crash. The forecast was made by a team lead by the econophysicist Didier Sornette at the Swiss Federal Institute of Technology in Zurich, who has made a study of economic bubbles and how they burst. His thinking is that bubbles are the result of some kind of feedback mechanism that creates faster-than-exponential growth. This kind of growth rate is straightforward to measure, and so bubbles should be easy to identify. In July, he and his buddies pointed out that the Shanghai Composite stock market index was following exactly this kind of trend. But they also made an extraordinary prediction. They said that this bubble would burst between July 17 and 27.