eprintid: 422
rev_number: 15
eprint_status: archive
userid: 27
dir: disk0/00/00/04/22
datestamp: 2011-07-04 09:19:17
lastmod: 2014-12-18 15:21:18
status_changed: 2011-07-04 09:19:17
type: article
metadata_visibility: show
item_issues_count: 0
creators_name: Petersen, Alexander M.
creators_name: Wang, Fengzhong
creators_name: Havlin, Shlomo
creators_name: Stanley, H. Eugene
creators_id: alexander.petersen@imtlucca.it
creators_id: 
creators_id: 
creators_id: 
title: Market dynamics immediately before and after financial shocks: Quantifying the Omori, productivity, and Bath laws
ispublished: pub
subjects: HG
subjects: QC
divisions: EIC
full_text_status: public
keywords: PACS: 89.65.Gh, 91.30.Px, 89.75.Da, 05.45.Tp
note: © 2010 American Physical Society


abstract: We study the cascading dynamics immediately before and immediately after 219 market shocks. We define the time of a market shock Tc to be the time for which the market volatility V(Tc) has a peak that exceeds a predetermined threshold. The cascade of high volatility “aftershocks” triggered by the “main shock” is quantitatively similar to earthquakes and solar flares, which have been described by three empirical laws—the Omori law, the productivity law, and the Bath law. We analyze the most traded 531 stocks in U.S. markets during the 2 yr period of 2001–2002 at the 1 min time resolution. We find quantitative relations between the main shock magnitude M≡log10 V(Tc) and the parameters quantifying the decay of volatility aftershocks as well as the volatility preshocks. We also find that stocks with larger trading activity react more strongly and more quickly to market shocks than stocks with smaller trading activity. Our findings characterize the typical volatility response conditional on M, both at the market and the individual stock scale. We argue that there is potential utility in these three statistical quantitative relations with applications in option pricing and volatility trading.
date: 2010-09
date_type: published
publication: Physical Review E
volume: 82
number: 3
publisher: American Physical Society
pagerange: 036114
id_number: 10.1103/PhysRevE.82.036114 
refereed: TRUE
issn: 1539-3755
official_url: http://link.aps.org/doi/10.1103/PhysRevE.82.036114
related_url_url: http://arxiv.org/abs/1006.1882
citation:   Petersen, Alexander M. and Wang, Fengzhong and Havlin, Shlomo and Stanley, H. Eugene  Market dynamics immediately before and after financial shocks: Quantifying the Omori, productivity, and Bath laws.  Physical Review E, 82 (3).  036114.  ISSN 1539-3755      (2010)  
document_url: http://eprints.imtlucca.it/422/1/PhysRevE.Petersen_2010.pdf