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The complex nature of financial market microstructure: the case of a stock market crash

Author

Listed:
  • Feng Shi

    (University of North Carolina)

  • John Paul Broussard

    (University of Oklahoma
    Rutgers University)

  • G. Geoffrey Booth

    (The Citadel
    Michigan State University)

Abstract

This paper uses multivariate Hawkes processes to model the transactions behavior of the US stock market as measured by the 30 Dow Jones Industrial Average individual stocks before, during and after the 36-min May 6, 2010, Flash Crash. The basis for our analysis is the excitation matrix, which describes a complex network of interactions among the stocks. Using high-frequency transactions data, we find strong evidence of self- and asymmetrically cross-induced contagion and the presence of fragmented trading venues. Our findings have implications for stock trading and corresponding risk management strategies as well as stock market microstructure design.

Suggested Citation

  • Feng Shi & John Paul Broussard & G. Geoffrey Booth, 2025. "The complex nature of financial market microstructure: the case of a stock market crash," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 20(1), pages 1-40, January.
    • Handle: RePEc:spr:jeicoo:v:20:y:2025:i:1:d:10.1007_s11403-021-00343-4
    DOI: 10.1007/s11403-021-00343-4
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    More about this item

    Keywords

    Stock market; Contagion; Networks; Hawkes processes; Granger causality; Adaptive learning; Behavioral finance;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • P1 - Political Economy and Comparative Economic Systems - - Capitalist Economies

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