The Flash Crash: An Examination of Shareholder Wealth and Market Quality

39 Pages Posted: 27 Aug 2011 Last revised: 27 Aug 2019

See all articles by Thomas Jason Boulton

Thomas Jason Boulton

Miami University

Marcus V. Braga-Alves

Pace University

Manoj Kulchania

Wayne State University - Finance Group

Date Written: May 1, 2013

Abstract

We investigate stock returns, market quality, and options market activity around the flash crash of May 6, 2010. Abnormal returns are negative on the day of and the day after the flash crash for stocks that had trades that executed during the crash subsequently cancelled by either Nasdaq or NYSE Arca. Consistent with studies that suggest that other sources of liquidity withdrew from the markets during the flash crash, we find that the fraction of trades executed by the NYSE increases during this volatile period. Market quality deteriorates following the flash crash as bid-ask spreads increase and quote depths decrease. Evidence from the options markets indicates that investor uncertainty increased around the time of the crash and remained elevated for several days afterwards.

Keywords: Flash Crash, event study, market quality

JEL Classification: D02, G14, G28

Suggested Citation

Boulton, Thomas Jason and Braga-Alves, Marcus V. and Kulchania, Manoj, The Flash Crash: An Examination of Shareholder Wealth and Market Quality (May 1, 2013). Journal of Financial Intermediation, Vol. 23, No. 1, 2014; Pace University Finance Research Paper No. 2011/06. Available at SSRN: https://ssrn.com/abstract=1917960 or http://dx.doi.org/10.2139/ssrn.1917960

Thomas Jason Boulton (Contact Author)

Miami University ( email )

3028 Farmer School of Business
Oxford, OH 45056
United States
(513) 529-1563 (Phone)
(513) 529-8598 (Fax)

Marcus V. Braga-Alves

Pace University ( email )

1 Pace Plaza
New York, NY 10038-1502
United States

Manoj Kulchania

Wayne State University - Finance Group ( email )

2771 Woodward Ave
Detroit, MI 48201
United States
313-577-7837 (Phone)

HOME PAGE: http://ilitchbusiness.wayne.edu/profile/fr3472

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