The Flash Crash: The Impact of High Frequency Trading on an Electronic Market
Andrei A. Kirilenko
MIT Sloan School of Management
Albert S. Kyle
University of Maryland; National Bureau of Economic Research (NBER)
University of North Carolina (UNC) at Chapel Hill - Finance Area
Federal Reserve Board
May 26, 2011
The Flash Crash, a brief period of extreme market volatility on May 6, 2010 raised questions about the current structure of the U.S. financial markets. We use audit-trail data to describe the structure of the E-mini S&P 500 stock index futures market on May 6. We ask three questions. How did High Frequency Traders (HFTs) trade on May 6? What may have triggered the Flash Crash? What role did HFTs play in the Flash Crash? We conclude that HFTs did not trigger the Flash Crash, but their responses to the unusually large selling pressure on that day exacerbated market volatility.
Number of Pages in PDF File: 64
Keywords: High Frequency Trading, Algorithmic Trading, Flash Crash, Liquidity, Volatility, Price Impact, May 6
JEL Classification: G12, G13, G18, G28working papers series
Date posted: May 27, 2011
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