The flash crash: A cautionary tale about highly fragmented markets
A breakdown of cross-market arbitrage activity could make markets more fragile and result in price crashes. We provide suggestive evidence for this novel channel based on a high-frequency analysis of the most salient crash in recent history: The Flash Crash. We further show that such an event can be...
Saved in:
Main Authors: | , |
---|---|
Format: | text |
Language: | English |
Published: |
Institutional Knowledge at Singapore Management University
2019
|
Subjects: | |
Online Access: | https://ink.library.smu.edu.sg/lkcsb_research/7285 https://ink.library.smu.edu.sg/context/lkcsb_research/article/8284/viewcontent/FlashCrash_sv.pdf |
Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
Institution: | Singapore Management University |
Language: | English |
Summary: | A breakdown of cross-market arbitrage activity could make markets more fragile and result in price crashes. We provide suggestive evidence for this novel channel based on a high-frequency analysis of the most salient crash in recent history: The Flash Crash. We further show that such an event can be extremely costly for a large seller trading in a particular venue as the seller effectively relies on local liquidity supply only. These findings highlight the vulnerability of today's highly fragmented markets. |
---|