Publication Type
Journal Article
Version
submittedVersion
Publication Date
10-2019
Abstract
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.
Keywords
flash crash, large seller, electronic market, broken arbitrage
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Publication
Management Science
Volume
65
Issue
10
First Page
4470
Last Page
4488
ISSN
0025-1909
Identifier
10.1287/mnsc.2018.3040
Publisher
Institute for Operations Research and Management Sciences
Citation
MENKVELD, Albert J. and YUESHEN, Bart Zhou.
The flash crash: A cautionary tale about highly fragmented markets. (2019). Management Science. 65, (10), 4470-4488.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7285
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1287/mnsc.2018.3040