Abstract
This paper uses multivariate Hawkes processes to model the transactions behavior of the U.S. stock market as proxied by the 30 Dow Jones Industrial Average stocks before, during and after the May 6, 2010 flash crash, which lasted 36 minutes. The basis for our analysis is the excitation matrix, which describes the network of interactions among the stocks. Using high-frequency transactions data for individual stocks, we find, among other things, strong evidence of contagion that is self- and asymmetrically cross-induced. Our descriptive findings have implications for stock trading and corresponding risk management strategies, as well as stock market microstructure design.
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