The complex nature of financial market microstructure: the case of a stock market crash

Feng Shi, John Paul Broussard () and G. Geoffrey Booth
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Feng Shi: University of North Carolina
John Paul Broussard: University of Oklahoma
G. Geoffrey Booth: The Citadel

Journal of Economic Interaction and Coordination, 2025, vol. 20, issue 1, No 1, 40 pages

Abstract: Abstract This paper uses multivariate Hawkes processes to model the transactions behavior of the US stock market as measured by the 30 Dow Jones Industrial Average individual stocks before, during and after the 36-min May 6, 2010, Flash Crash. The basis for our analysis is the excitation matrix, which describes a complex network of interactions among the stocks. Using high-frequency transactions data, we find strong evidence of self- and asymmetrically cross-induced contagion and the presence of fragmented trading venues. Our findings have implications for stock trading and corresponding risk management strategies as well as stock market microstructure design.

Keywords: Stock market; Contagion; Networks; Hawkes processes; Granger causality; Adaptive learning; Behavioral finance (search for similar items in EconPapers)
JEL-codes: D47 D80 G12 G14 G23 G41 P1 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11403-021-00343-4

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