Modeling Flash Crash Behavior in a Stock Market Using Multivariate Hawkes Processes

36 Pages Posted: 25 Jul 2019 Last revised: 29 Jun 2020

See all articles by Feng Shi

Feng Shi

Amazon; University of North Carolina (UNC) at Chapel Hill - Odum Institute for Research in Social Science

John Paul Broussard

University of Oklahoma; Rutgers University; Estonian Business School

G. Geoffrey Booth

Michigan State University; The Citadel, The Military College of South Carolina

Date Written: June 26, 2020

Abstract

This paper uses multivariate Hawkes processes to model the transactions behavior of the U.S. stock market as proxied by the 30 Dow Jones Industrial Average stocks before, during and after the May 6, 2010 flash crash, which lasted 36 minutes. The basis for our analysis is the excitation matrix, which describes the network of interactions among the stocks. Using high-frequency transactions data for individual stocks, we find, among other things, strong evidence of contagion that is self- and asymmetrically cross-induced. Our descriptive findings have implications for stock trading and corresponding risk management strategies, as well as stock market microstructure design.

Keywords: Flash Crash, Hawkes Processes

JEL Classification: G01, G19

Suggested Citation

Shi, Feng and Broussard, John Paul and Booth, G. Geoffrey, Modeling Flash Crash Behavior in a Stock Market Using Multivariate Hawkes Processes (June 26, 2020). Available at SSRN: https://ssrn.com/abstract=3425664 or http://dx.doi.org/10.2139/ssrn.3425664

Feng Shi

Amazon ( email )

Seattle, WA 98144
United States

University of North Carolina (UNC) at Chapel Hill - Odum Institute for Research in Social Science ( email )

Chapel HIll, NC 27599
United States

John Paul Broussard (Contact Author)

University of Oklahoma ( email )

Norman, OK 73019
United States
4053255591 (Phone)

HOME PAGE: http://https://www.ou.edu/price/finance/faculty/john-paul-broussard

Rutgers University ( email )

Camden, NJ 08102
United States
+18562256647 (Phone)

Estonian Business School ( email )

A. Lauteri 3
Tallinn, 10114
Estonia

G. Geoffrey Booth

Michigan State University ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

The Citadel, The Military College of South Carolina ( email )

171 Moultrie St.
Charleston, SC 29409
United States

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