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.
Download (538kB) | Preview
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:||04 Apr 2017 09:24|
 V. Akgiray, Journal of Business, 62 (1989), 55.
 P. Bak and M. Paczuski, Proceedings of the National Academy of Sciences of the USA, 92 (1995), 6689.
 X. Gabaix and R. Ibragimov, NBER Working Papers, 342 (2007), 1.
 I. Gleria, R. Matsushita and S. Da Silva, Economics Bulletin, 7 (2002), 1.
 P. Gopikrishnan, M. Meyer, L.A.N. Amaral and H.E. Stanley, European Journal of Physics B, 3 (1998), 139.
 R. Mantegna and H.E. Stanley, Nature, 376 (1995), 46.
 R. Mantegna and H.E. Stanley, Physica A, 254 (1998), 77.
 R. Mantegna and H.E. Stanley, An Introduction to Econophysics: Correlations and Complexity in Finance, Cambridge University Press, Cambridge, 2000.
 J.P. Nolan, in: O.E. Barndorff-Nielsen, T. Mkosch and S. Resnick (Eds.),Lévy Processes, Brikhauser, Boston.
 B. Podobnik, P.C. Ivanov, I. Grosse, K. Matia, H.E. Stanley, Physica A, 344 (2004), 216.