Market panic on different time-scales
AbstractCross-sectional signatures of market panic were recently discussed on daily time scales in , extended here to a study of cross-sectional properties of stocks on intra-day time scales. We confirm specific intra-day patterns of dispersion and kurtosis, and find that the correlation across stocks increases in times of panic yielding a bimodal distribution for the sum of signs of returns. We also find that there is memory in correlations, decaying as a power law with exponent 0.05. During the Flash-Crash of May 6 2010, we find a drastic increase in dispersion in conjunction with increased correlations. However, the kurtosis decreases only slightly in contrast to findings on daily time-scales where kurtosis drops drastically in times of panic. Our study indicates that this difference in behavior is result of the origin of the panic-inducing volatility shock: the more correlated across stocks the shock is, the more the kurtosis will decrease; the more idiosyncratic the shock, the lesser this effect and kurtosis is positively correlated with dispersion. We also find that there is a leverage effect for correlations: negative returns tend to precede an increase in correlations. A stock price feed-back model with skew in conjunction with a correlation dynamics that follows market volatility explains our observations nicely.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1010.4917.
Date of creation: Oct 2010
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-06 (All new papers)
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- Damien Challet & Matteo Marsili & Yi-Cheng Zhang, 2001.
"Stylized facts of financial markets and market crashes in Minority Games,"
- Challet, Damien & Marsili, Matteo & Zhang, Yi-Cheng, 2001. "Stylized facts of financial markets and market crashes in Minority Games," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 294(3), pages 514-524.
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- Taisei Kaizoji, 2006. "Power laws and market crashes," Papers physics/0603138, arXiv.org.
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