Collective behavior of stock prices as a precursor to market crash
AbstractWe study precursors to the global market crash that occurred on all main stock exchanges throughout the world in October 2008 about three weeks after the bankruptcy of Lehman Brothers Holdings Inc. on 15 September. We examine the collective behavior of stock returns and analyze the market mode, which is a market-wide collective mode, with constituent issues of the FTSE 100 index listed on the London Stock Exchange. Before the market crash, a sharp rise in a measure of the collective behavior was observed. It was shown to be associated with news including the words "financial crisis." They did not impact stock prices severely alone, but they exacerbated the pessimistic mood that prevailed among stock market participants. Such news increased after the Lehman shock preceding the market crash. The variance increased along with the cumulative amount of news according to a power law.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1111.4637.
Date of creation: Nov 2011
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-28 (All new papers)
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