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Aftershock Prediction for High-Frequency Financial Markets’ Dynamics

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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.

Keywords

  • Probability Density Function
  • Main Shock
  • Joint Probability Density Function
  • Financial Index
  • Daily Window

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Notes

  1. 1.

    In order to keep contact with ordinary notations for the Omori law, in this paper we change slightly our usual conventions by shifting the origin of time by one unit with respect to, e.g., Refs. [2, 3].

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Acknowledgements

This work is supported by “Fondazione Cassa di Risparmio di Padova e Rovigo” within the 2008-2009 “Progetti di Eccellenza” program.

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Correspondence to Fulvio Baldovin .

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Baldovin, F., Camana, F., Caraglio, M., Stella, A.L., Zamparo, M. (2013). Aftershock Prediction for High-Frequency Financial Markets’ Dynamics. In: Abergel, F., Chakrabarti, B., Chakraborti, A., Ghosh, A. (eds) Econophysics of Systemic Risk and Network Dynamics. New Economic Windows. Springer, Milano. https://doi.org/10.1007/978-88-470-2553-0_4

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