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http://ssrn.com/abstract=1686004
 
 

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The Flash Crash: The Impact of High Frequency Trading on an Electronic Market


Andrei A. Kirilenko


Massachusetts Institute of Technology (MIT) Sloan School of Management

Albert S. Kyle


University of Maryland; National Bureau of Economic Research (NBER)

Mehrdad Samadi


University of North Carolina (UNC) at Chapel Hill - Finance Area

Tugkan Tuzun


Federal Reserve Board

September 24, 2014


Abstract:     
We present an empirical analysis of the Flash Crash – a systemic market event on May 6, 2010. The Flash Crash was blamed on high frequency traders (HFTs) – hyperactive trading algorithms operating inside automated markets. We use audit-trail data for the E-mini S&P 500 futures contract to show that HFTs did not cause the Flash Crash – a large sell program did – but exacerbated the price movement by absorbing immediacy ahead of others. We present novel findings on the trading behavior of HFTs as part of a market ecosystem and propose recommendations for making automated markets more resilient to large liquidity imbalances.

Number of Pages in PDF File: 47

Keywords: High Frequency Trading, Algorithmic Trading, Flash Crash, Liquidity, Volatility, Price Impact, May 6

JEL Classification: G12, G13, G18, G28

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Date posted: May 27, 2011 ; Last revised: September 27, 2014

Suggested Citation

Kirilenko, Andrei A. and Kyle, Albert S. and Samadi, Mehrdad and Tuzun, Tugkan, The Flash Crash: The Impact of High Frequency Trading on an Electronic Market (September 24, 2014). Available at SSRN: http://ssrn.com/abstract=1686004 or http://dx.doi.org/10.2139/ssrn.1686004

Contact Information

Andrei A. Kirilenko (Contact Author)
Massachusetts Institute of Technology (MIT) Sloan School of Management ( email )
100 Main Street
E62-612
Cambridge, MA 02142
United States
HOME PAGE: http://mitsloan.mit.edu/faculty/detail.php?in_spseqno=54152
Albert (Pete) S. Kyle
University of Maryland ( email )
College Park, MD 20742
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Mehrdad Samadi
University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )
Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
Tugkan Tuzun
Federal Reserve Board ( email )
DC 20551
United States
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