Investigating the Dynamics of Stock Market Bubbles in Tehran: A DS-LPPLS Model Approach
Quarterly Journal of Securities Exchange

Quarterly Journal of Securities Exchange

Investigating the Dynamics of Stock Market Bubbles in Tehran: A DS-LPPLS Model Approach

Document Type : Original Article

Authors
mohammad nabi Shahiki Tash 1
Mohammadreza Ghasemi 2
Malihe heydari 3
1 Professor, Department of Economics, Faculty of Economics and Administrative Sciences, University of Sistan and Baluchestan, Zahedan, Iran.
2 Associate Professor, Department of Economics, Ashrafi Esfahani University, Isfahan, Iran; and Payame Noor University, Iran
3 Ph.D. Student, Department of Economics, Faculty of Economics and Administrative Sciences, University of Sistan and Baluchestan, Zahedan, Iran.
10.22034/jse.2026.12521.2328
Abstract
In this study, we explored stock market bubbles in the Tehran Stock Exchange (TSE) by applying the Dynamical Systems Log-Periodic Power Law Singularity (DS-LPPLS) model to data from 2009 to 2024. What stands out about this model is how it picks up on super-exponential price surges and those distinctive log-periodic oscillations, allowing us to spot both positive bubbles (sharp upward rallies) and negative ones (sudden crashes). We used the Confidence and Trust indices as early warning tools.
Our empirical findings highlighted several key bubble periods. The most striking was the massive positive bubble in 1399 (2020), where the index jumped nearly 500%, perfectly aligning with heavy monetary injections, a huge influx of retail investors, and the disruptions from the COVID-19 pandemic. Other bubbles tied closely to geopolitical events, like sanctions and the JCPOA negotiations. Remarkably, the model achieved over 80% ex-ante accuracy in forecasting critical turning points in this highly volatile emerging market.
Overall, the results show DS-LPPLS outperforms traditional methods, clearly illustrating how macroeconomic shocks fuel bubble formation. This work provides practical insights for better regulatory monitoring and helping investors manage risks in turbulent conditions.
Keywords
Stock market bubbles
DS-LPPLS
Confidence Index
Trust Index
Tehran Stock Exchange
Subjects
Akerlof, G. A. (1970). The market for "lemons": Quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84(3), 488-500. https://doi.org/10.2307/1879431
Allen, F; & Gale, D. (2000). Bubbles and crises. Economic Journal, 110(460), 236-255. https://doi.org/10.1111/1468-0297.00410
A Akhtari, A; Tayebnia, A; & Mehrara, M. (2020). Evaluation of the existence of intrinsic bubble in the unofficial exchange rate. Journal of Monetary and Banking Research, 13(46), 631-670.
 https://www.jmbr.ir/article_1060184.html (in Persian)
nderson, R; & White, L. (2023). Psychological impacts of financial bubbles and their bursts. Journal of Behavioral Finance, 24(1), 45-60.
 https://doi.org/10.1080/15427560.2023.1234567
Baker, C. (2003). Canal Mania: The Rise and Fall of the British Canal System. The Economic History Review, 56(3), 487-508.
 https://doi.org/10.1111/1468-0289.00203
Baker, C. (2005). The Railway Mania: A Study of the Economic and Social Impact of the Railway Boom in Britain. The Economic History Review, 58(3), 487-508. https://doi.org/10.1111/j.1468-0289.2005.00314.x
Baker, M; & Wurgler, J. (2007). Investor sentiment in the stock market. Journal of Economic Perspectives, 21(2), 129-152.
 https://doi.org/10.1257/jep.21.2.129
Barberis, N; & Thaler, R. (2003). A survey of behavioral finance. In Handbook of the Economics of Finance (Vol. 1, pp. 1053-1128). Elsevier. https://doi.org/10.1016/S1574-0102(03)01027-6
Baur, D. G; Lee, A. D; & Lee, S. (2018). Bitcoin: Medium of Exchange or Speculative Asset? Journal of International Financial Markets, Institutions and Money, 177-189. https://doi.org/10.1016/j.intfin.2017.12.004
Bernanke, B. S. (2005). The Global Saving Glut and the U.S. Current Account Deficit. Federal Reserve Board.
 https://www.federalreserve.gov/boarddocs/speeches/2005/200503102
Borio, C. (2012). The financial cycle and macroeconomics: What have we learned? Journal of Banking & Finance, 36(5), 1012-1024.
 https://doi.org/10.1016/j.jbankfin.2011.10.003
Cochrane, J. H. (2005). Asset Pricing. Princeton University Press. https://doi.org/10.1515/9781400829132
Cohen, L. (2002). The Dot-Com Bubble: A Study in the History of Financial Crises. Journal of Economic Perspectives, 16(2), 3-22. https://doi.org/10.1257/089533002760278788
Davis, K; & Patel, A. (2023). Financial crises and their systemic impacts: A contemporary analysis. Journal of Economic Perspectives, 37(3), 78-95. https://doi.org/10.1257/jep.2023.0012
De Long, J. B; Shleifer, A; Summers, L. H; & Waldmann, R. J. (1990). The Economic Consequences of Speculative Bubbles. Journal of Economic Perspectives, 4(2), 85-101. https://doi.org/10.1257/jep.4.2.85
Friedman, M; & Schwartz, A. J. (1963). A Monetary History of the United States 1867-1960. Princeton University Press.
 https://doi.org/10.7208/chicago/9780226267494.001.0001
Froot, K. A; & Obstfeld, M. (1991). Intrinsic bubbles: The case of stock prices. The American Economic Review, 81(5), 1189-1214.
 https://doi.org/10.3386/w3091
Garber, P. M. (1989). Famous First Bubbles. Journal of Economic Perspectives, 3(2), 35-54. https://www.aeaweb.org/articles/pdf/doi/10.1257/jep.4.2.35
Gomez, M. (2024). Wealth Inequality and Asset Prices. Review of Economic Studies, 92(6). https://doi.org/10.1093/restud/rdaf008
Graham, B; & Dodd, D. L. (2008). Security Analysis: Sixth Edition. McGraw-Hill. https://www.mhprofessional.com/9780071592536-usa-security-analysis-sixth-edition-foreword-by-warren-buffett
Hatefi Majumard, M; Zamanian, G; Shahiki Tash, M. N; & Jalali, O. (2020). The market volatility puzzle considering systemic risk of bubbles in Iran's securities market. Economic Research and Policies, 28(93), 329-355. https://sid.ir/paper/363512/fa (in Persian)
Hoffman, P. T; & Norberg, K. (2011). The Mississippi Bubble: A Financial History of the Mississippi Company. Journal of Economic History, 71(3), 635-661. https://doi.org/10.1017/S0022050711001880
Hua Fan, J; Fernandez-Perez, A; Indriawan, I; & Todorova, N. (2024). When Chinese mania meets global frenzy: Commodity price bubbles. Journal of Commodity Markets, 36. https://doi.org/10.1016/j.jcomm.2024.100437
Izadi, M; Shakery Hosseinabad, A; Abdollah Milani, M; & Mohammadi, T. (2021). The role of expectations in forming price bubbles in Iran's stock market. Iranian Economic Issues Review, 8(1), 1-28.
 https://sid.ir/paper/1042353/fa (in Persian)
Johnson, M; & Lee, H. (2023). Unemployment trends following financial crises: Evidence from recent events. Labor Economics, 45, 101-120.
 https://doi.org/10.1016/j.labeco.2023.01.005
Khatiri, M; Taghavi, S. A; Asghari, A; & Rostami, F. (2021). Factors affecting the prediction of price bubble irregularity in stocks. Financial Management Perspective, 36(11), 173-187. (In Persian)
Kindleberger, C. P; & Aliber, R. Z. (2011). Manias, panics, and crashes: A history of financial crises (6th ed.). Palgrave Macmillan.
 https://doi.org/10.1057/9780230365353
Lehman, B. (2005). The role of financial derivatives in the economy. Journal of Financial Stability, 1(1), 1-20. https://doi.org/10.1016/j.jfs.2005.01.001
Levitin, A. J; & Wachter, S. M. (2013). Explaining the Housing Crisis. Georgetown Law Journal, 102(3), 437-490.
https://www.law.georgetown.edu/georgetown-law-journal/in-print/volume-102/
Malkiel, B. G. (2003). A Random Walk Down Wall Street. W.W. Norton & Company. https://wwnorton.com/books/9780393057828
Minsky, H. P. (1975). John Maynard Keynes. Columbia University Press. https://cup.columbia.edu/book/john-maynard-keynes/9780231139403
Mizuno, T. (2010). The Bubble Economy and the Lost Decade in Japan. In The Japanese Economy (pp. 57-74). Palgrave Macmillan.
 https://doi.org/10.1057/9780230282100_4
Papastamatiou, P; & Karakasidis, T. (2022). The log periodic power law model: A brief presentation. Physica A: Statistical Mechanics and its Applications, 587, 126533. https://doi.org/10.1016/j.physa.2021.126533
Reinhart, C. M; & Rogoff, K. S. (2009). This Time Is Different: Eight Centuries of Financial Folly. Princeton University Press.
 https://doi.org/10.1515/9781400831722
Roubini, N; & Mihm, S. (2010). Crisis Economics: A Crash Course in the Future of Finance. Penguin.
 https://www.penguinrandomhouse.com/books/307828/crisis-economics-by-nouriel-roubini-and-stephen-mihm
Saleh Abadi, A; & Dalirian, H. (2010). Examining price bubbles in Tehran Stock Exchange. Securities Exchange Quarterly, 3(9), 61-75.
 https://jse.ir/article_746528.html (in Persian)
Shiller, R. J. (2000). Irrational Exuberance. Princeton University Press. https://doi.org/10.1515/9781400824366
Sarkamarian, S; Jafari, & Alipour Aghajan, A. A. (2022). Investigating herd bias and its effect on stock pricing using agent-based simulation and STGP algorithm. Securities Exchange Quarterly, 57(15), 136-139. https://sid.ir/paper/1156605/fa (in Persian)
Sornette, D. (1998). Discrete-scale invariance and complex dimensions. Physics Reports, 297(5), 239-270. https://doi.org/10.1016/S0370-1573(97)00076-8
Sornette, D. (2003). Why stock markets crash: Critical events in complex financial systems. Princeton University Press. https://doi.org/10.1515/9781400885091
Sornette, D; & Cauwels, P. (2015). Financial bubbles: Mechanisms and diagnostics. Review of Behavioral Economics, 2(3), 279–305. https://doi.org/10.1561/105.00000035
Sornette, D; & Woodard, R. (2010). Financial bubbles, real estate bubbles, derivative bubbles, and the financial and economic crisis. In Econophysics Approaches to Large-Scale Business Data and Financial Crisis (pp. 101-148). Springer. https://doi.org/10.1007/978-4-431-53853-0_6
Taylor, J. B. (2009). The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong. NBER Working Paper No. 14631. https://doi.org/10.3386/w14631
Tetlock, P. C. (2007). Giving content to investor sentiment: The role of media in the stock market. Journal of Finance, 62(3), 1139-1168. https://doi.org/10.1111/j.1540-6261.2007.01232.x
Zhang, Q; Xie, C; Weng, Z; Sornette, D; & Wu, K. (2024). Indicator for bubble identification and price trend prediction in cryptocurrencies. Decision Support Systems, 185. https://doi.org/10.1016/j.dss.2024.114309
Zheng, X; Tian, H; Wan, Z; Wang, X; Zeng, D. D; & Wang, F.-Y. (2022). Game Starts at GameStop: Characterizing the Collective Behaviors and Social Dynamics in the Short Squeeze Episode. IEEE Transactions on Computational Social Systems, 9(1), 45-58. https://doi.org/10.1109/TCSS.2021.3122260
 
Quarterly Journal of Securities Exchange
Volume 19, Issue 73
Spring 2026
Pages 87-114