2020/12/05 by Anish Rai, Ajit Mahata, Md Nurujjaman +3 · 19 citations
Economics, Econometrics and Finance · Mathematics · Medicine · #Aftershock #Complex Systems and Time Series Analysis #Computer science #Coronavirus disease 2019 (COVID-19) #Crash #Earthquake rupture #Econometrics #Economics #Fault (geology) #Financial Markets and Investment Strategies #Financial Risk and Volatility Modeling #Financial crisis #Geography #Geology #Keynesian economics #Market Dynamics and Volatility #Mathematics #Medicine #Pandemic #Pareto distribution #Seismology #Statistics #Stock (firearms) #Stock market #Stock market crash #q-fin.ST
paper · pdf · doi:10.1142/s012918312250019x
published in arXiv (Cornell University) 33(02) (Cornell University) · Accepted in International Journal of Modern Physics C (World Scientific)
openalex publication_date 2020/12/05 · arxiv created 2021/09/01 · crossref issued 2021/09/09 · crossref published 2021/09/09 · crossref published-online 2021/09/09 · crossref created 2021/09/12 · openalex created_date 2021/09/27 · arxiv updated 2021/10/18 · crossref published-print 2022/02/01 · crossref deposited 2023/01/09 · crossref indexed 2026/08/02 · openalex updated_date 2026/08/05
During any unique crisis, panic sell-off leads to a massive stock market crash that may continue for more than a day, termed as mainshock. The effect of a mainshock in the form of aftershocks can be felt throughout the recovery phase of stock price. As the market remains in stress during recovery, any small perturbation leads to a relatively smaller aftershock. The duration of the recovery phase has been estimated using structural break analysis. We have carried out statistical analyses of the 1987 stock market crash, 2008 financial crisis and 2020 COVID-19 pandemic considering the actual crash-times of the mainshock and aftershocks. Earlier, such analyses were done considering an absolute one-day return, which cannot capture a crash properly. The results show that the mainshock and aftershock in the stock market follow the Gutenberg-Richter (GR) power law. Further, we obtained a higher β value for the COVID-19 crash compared to the financial-crisis-2008 from the GR law. This implies that the recovery of stock price during COVID-19 may be faster than the financial-crisis-2008. The result is consistent with the present recovery of the market from the COVID-19 pandemic. The analysis shows that the high magnitude aftershocks are rare, and low magnitude aftershocks are frequent during the recovery phase. The analysis also shows that the distribution P(τi) follows the generalized Pareto distribution, i.e., ~P(τi)∝\frac1\1+λ(q-1)τi\(1)/((q-1)), where λ and q are constants and τi is the inter-occurrence time. This analysis may help investors to restructure their portfolios during a market crash.