Empirical study on the order flow and the mechanism of abrupt rise and heavy decline in stock markets

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We have studied the mechanism of abrupt rise and heavy decline in stock markets from the perspective of herd behavior of market participants, which has an effect on the cross-correlations of returns among various stocks and the cumulative values of successive losses (drawdown). We have analyzed the time series of stock returns of issues listed on London Stock Exchange and Tokyo Stock Exchange to find that the synchronous movements of whole of issues appear during the period of large price change, and the large drawdown of each issue frequently occur throughout the same period.