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Why do Stock Prices Move Jump so Often? 

Speaker: Dr Jean-Philippe Bouchaud

CQF Institute is proud to bring you a free online talk with Dr Jean-Philippe Bouchaud on stock prices 

Event Agenda 

17:30 - 18:00 BST - Networking and CQF Booth 

18:00 - 19:30 BST - CQF Institute Talk: Why do Stock Prices Move Jump so Often?

19:30 - 20:00 BST - Networking and CQF Booth 

This event can earn you up to 2 CPD credits.

Abstract

Earthquakes, disease outbreaks, volcanic eruptions, avalanches, economic crises and financial crashes are but a few examples of a long list of extreme events that upend natural and social systems. A central question is whether these events are caused by  *exogenous* events or result from some amplifying feedback mechanism internal to the system, in which case the shock is *endogenous*. This topic is particularly important in the context of financial markets, and is related to the long-standing Efficient Market controversy. If markets are efficient, significant price movements can only be due to unpredictable exogenous shocks. On the other hand, if self-reflexive feedback loops are present, extreme price displacements can be triggered by small (and seemingly irrelevant) fluctuations, which can ultimately generate substantial excess volatility.

Using a joint database of stock price movements and financial news, we show that it is possible to classify extreme price moves into two distinct dynamical classes, news-driven and self-excited, the second category containing 95% of intraday jumps. Self-excited jumps display very different properties from news induced jumps. In agreement with recently introduced endogenous liquidity crises models, self-excited jumps appear to be preceded by a slow increase in volatility and price trends.

Inspired by the family of Hawkes models, originally devised for earthquakes dynamics, we describe the volatility profiles before and after the jumps with power-laws, and use these fits to show that a non-supervised classification of jumps into two separate classes is possible.

Speaker's Bio

Jean-Philippe Bouchaud is the Chairman and Chief Scientist of CFM. He supervises the research team with Marc Potters. He founded ‘Science and Finance’ in 1994, which merged with CFM in 2000. Prior to CFM he was a researcher at the Centre National de la Recherche Scientifique until 1992. After a year at the Cavendish Laboratory in Cambridge, he joined the Service de Physique de l’État Condensé at the Commissariat à l’Energie Atomique in Saclay, France, until 2004. He holds a PhD in theoretical physics from the École Normale Supérieure (ENS) in Paris. Jean-Philippe teaches regularly at the ENS and was elected at Collège de France on the Bettencourt Innovation Chair for 2020. He is also Member of the French Académie des Sciences since December 2017