Markets are prone to sudden regime shifts from "summary" of Why Stock Markets Crash by Didier Sornette
The notion that markets are susceptible to abrupt regime changes is a key concept in understanding the dynamics of stock market crashes. This idea challenges the traditional view that markets follow a smooth and predictable path, instead highlighting the inherent uncertainty and instability that can lead to sudden shifts in market behavior. Regime shifts are characterized by a fundamental change in the underlying dynamics of the market, often triggered by a combination of external events and internal feedback mechanisms. These shifts can be dramatic and unpredictable, causing prices to deviate significantly from their previous trajectory. As a result, traditional models based on linear and predictable trends may fail to capture the true nature of m...
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