If you thought that 2008 was a bad year for finance, that’s nothing compared to what’s coming next.

A team of Polish researchers have performed a statistical analysis on the S&P 500 stock market index and their conclusions are – well – not good.

They believe we’ve got about 12 years or so before a cataclysmic financial meltdown will crash all markets around the globe.

This doesn’t sound good (Image: Getty)

‘The data is, unfortunately, quite unambiguous. It seems that since the mid-2020s, a global financial crash of a previously unprecedented scale is highly probable,’ said Prof. Stanislaw Drozdz, from the team at the Institute of Nuclear Physics of the Polish Academy of Sciences.

‘This time, the change will be qualitative, indeed radical,’ he said.

To reach their rather worrying hypothesis (and it is just a theory, remember), Professor Drozdz and his colleagues looked at various economic data, including the daily listing of Standard & Poor’s 500 index in the period from January 1950 to December 2016.

They focused on something called ‘the Hurst exponent’ which assumes values from 0 to 1 and reflects the degree of susceptibility of a system to a change in trend.

And it appears that financial markets don’t respond well to change.

Multifractal and fractal manifestations of nervousness in the world economy. Top: changes in the Hurst exponent for the S&P 500 index in the last half-century, with the moments of financial crashes marked. Below: oscillations of the S&P 500 in the years 1800-2003 with extrapolation (made in 2003) to 2025. (Image: IFJ PAN)

Stable, mature markets are recognized as being those whose Hurst exponent is equal to 0.5 or shows only slight deviations from this value. The Hurst graph for the S&P 500 does actually start at 0.5. On October 19, 1987, however, there was a crash—Black Monday. The exponent then slightly decreased, but for more than a decade, it remained relatively stable again.

At the turn of the century, there was a clear fall, and by March 2000, the dot-com bubble had burst. Just as before, the Hurst exponent again stabilized, but for a shorter period.

The next crash will make 2008 look like a stumbling block (Image: Getty)

At the end of the first decade, it suddenly began to grow rapidly, only to fall after the bankruptcy of Lehman Brothers in September 2008. From that moment, the Hurst exponent not only did not return to the value of 0.5, but in the last decade, it has quite clearly and systematically fallen below the particularly worrying value of 0.4.

‘What is also striking in the changes in the Hurst exponent for the S&P 500 is the shortening time intervals between consecutive crashes and the fact that after each collapse, the indicator never returns to its original level,’ Professor Drozdz said.

‘We have a clear signal here that the nervousness of the world market is growing all the time, for decades, regardless of changing people, business entities or technology,’

Lehman Brothers collapsed during the financial crisis of 2008 (Image: Getty)

In the study, which was published in the journal Complexity, the team acknowledge that while maths may forecast a crash, that doesn’t necessarily mean it’ll come to pass.

They also point out, a bit self-servingly, that predicting doom and gloom is a bit of a win-win for them. If the crash happens, they get to say ‘we told you so’, if it doesn’t, they claim their analysis and warnings prevented it.

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‘We are the only ones who can’t lose on this forecast. If the hyper-crash does occur, we will have shown the power of our multifractal statistical tools in a spectacular way,’ said Professor Drozdz.

‘Personally, however, I would prefer for this not to happen. If this is the case and the hyper-crash does not occur, we will still have the quite acceptable interpretation that our forecast was correct, but today’s press release will have influenced the behaviour of market participants and, we have just saved the world.’