6533b86ffe1ef96bd12cd2be

RESEARCH PRODUCT

Dynamics of a financial market index after a crash

Fabrizio LilloRosario N. Mantegna

subject

Statistics and ProbabilityStatistical Finance (q-fin.ST)Index (economics)Actuarial scienceStatistical Mechanics (cond-mat.stat-mech)EconophysicsScale (ratio)Autoregressive conditional heteroskedasticityFinancial marketFOS: Physical sciencesQuantitative Finance - Statistical FinanceCrashFunction (mathematics)Condensed Matter PhysicsFOS: Economics and businessEconophysicsFinancial marketsCrashesValue at RiskEconometricsEconomicsCondensed Matter - Statistical MechanicsValue at risk

description

We discuss the statistical properties of index returns in a financial market just after a major market crash. The observed non-stationary behavior of index returns is characterized in terms of the exceedances over a given threshold. This characterization is analogous to the Omori law originally observed in geophysics. By performing numerical simulations and theoretical modelling, we show that the nonlinear behavior observed in real market crashes cannot be described by a GARCH(1,1) model. We also show that the time evolution of the Value at Risk observed just after a major crash is described by a power-law function lacking a typical scale.

yearjournalcountryeditionlanguage
2002-09-30Physica A: Statistical Mechanics and its Applications
https://doi.org/10.1016/j.physa.2004.02.034