The Flash Crash: A Cautionary Tale about Highly Fragmented Markets

Management Science, Forthcoming

39 Pages Posted: 4 Apr 2013 Last revised: 5 Jan 2018

Date Written: November 15, 2017


A breakdown of cross-market arbitrage activity makes markets more fragile, and could result in price crashes. We provide supportive 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 event can be extremely costly for a large seller trading in a particular venue as he 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

JEL Classification: G10

Suggested Citation

Menkveld, Albert J. and Yueshen, Bart Zhou, The Flash Crash: A Cautionary Tale about Highly Fragmented Markets (November 15, 2017). Management Science, Forthcoming, Available at SSRN: or

Albert J. Menkveld

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
+31 20 5986130 (Phone)
+31 20 5986020 (Fax)

Bart Zhou Yueshen (Contact Author)

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex

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