2010/10/23 by Lisa Borland, Borland, Lisa, Yoan Hassid +1
Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #FOS: Economics and business #Financial Markets and Investment Strategies #Market Dynamics and Volatility #Statistical Finance (q-fin.ST)
paper · pdf · doi:10.48550/arxiv.1010.4917
openalex publication_date 2010/10/23 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
Cross-sectional signatures of market panic were recently discussed on daily time scales in [1], extended here to a study of cross-sectional properties of stocks on intra-day time scales. We confirm specific intra-day patterns of dispersion and kurtosis, and find that the correlation across stocks increases in times of panic yielding a bimodal distribution for the sum of signs of returns. We also find that there is memory in correlations, decaying as a power law with exponent 0.05. During the Flash-Crash of May 6 2010, we find a drastic increase in dispersion in conjunction with increased correlations. However, the kurtosis decreases only slightly in contrast to findings on daily time-scales where kurtosis drops drastically in times of panic. Our study indicates that this difference in behavior is result of the origin of the panic-inducing volatility shock: the more correlated across stocks the shock is, the more the kurtosis will decrease; the more idiosyncratic the shock, the lesser this effect and kurtosis is positively correlated with dispersion. We also find that there is a leverage effect for correlations: negative returns tend to precede an increase in correlations. A stock price feed-back model with skew in conjunction with a correlation dynamics that follows market volatility explains our observations nicely.