Mazzeu, Joao and Otuki, Thiago and Da Silva, Sergio (2011): The canonical econophysics approach to the flash crash of May 6, 2010. Published in: Applied Mathematical Sciences , Vol. 28, No. 5 (2011): pp. 1373-1389.
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We carry out a statistical physics analysis of the flash crash of May 6, 2010 using data from the Dow Jones Industrial Average index sampled at a one-minute frequency from September 1, 2009 to May 31, 2010. We evaluate the hypothesis of a non-Gaussian Levy-stable distribution to model the data and pay particular attention to the distribution-tail behavior. We conclude that there is non-Gaussian scaling and thus that the flash crash cannot be considered an anomaly. From the study of tails, we find that the flash crash followed a power-law pattern outside the Levy regime, which was not the inverse cubic law. Finally, we show that the time-dependent variance of the DJIA-index returns, not tracked by the Levy, can be modeled in a straightforward manner by a GARCH (1, 1) process.
|Item Type:||MPRA Paper|
|Original Title:||The canonical econophysics approach to the flash crash of May 6, 2010|
|Keywords:||flash crash; econophysics; stable distribution; extreme events|
|Subjects:||C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C46 - Specific Distributions; Specific Statistics
G - Financial Economics > G0 - General > G01 - Financial Crises
|Depositing User:||Sergio Da Silva|
|Date Deposited:||25. Feb 2011 16:45|
|Last Modified:||19. Feb 2013 06:57|
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