Abstract

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
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
Feedback to SSRN


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