Aftershock prediction for high-frequency financial markets' dynamics
Fulvio Baldovin,
Francesco Camana,
Michele Caraglio,
Attilio L. Stella and
Marco Zamparo
Papers from arXiv.org
Abstract:
The occurrence of aftershocks following a major financial crash manifests the critical dynamical response of financial markets. Aftershocks put additional stress on markets, with conceivable dramatic consequences. Such a phenomenon has been shown to be common to most financial assets, both at high and low frequency. Its present-day description relies on an empirical characterization proposed by Omori at the end of 1800 for seismic earthquakes. We point out the limited predictive power in this phenomenological approach and present a stochastic model, based on the scaling symmetry of financial assets, which is potentially capable to predict aftershocks occurrence, given the main shock magnitude. Comparisons with S&P high-frequency data confirm this predictive potential.
Date: 2012-03, Revised 2012-07
New Economics Papers: this item is included in nep-for, nep-mst and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1203.5893
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