The Flash Crash: A New Deconstruction

53 Pages Posted: 26 Jan 2016 Last revised: 10 May 2017

See all articles by Eric M. Aldrich

Eric M. Aldrich

University of California, Santa Cruz

Joseph Grundfest

Stanford University Law School

Gregory Laughlin

Yale University

Date Written: March 26, 2017


The “Flash Crash” of May 6th, 2010 comprised an unprecedented, rapid decline in the Dow Jones Industrial Average that was followed by a rapid, disorderly recovery of prices. We illuminate the causes of this singular event with the first analysis of all order book activity at millisecond granularity. We document previously overlooked market data anomalies and establish that these anomalies Granger-caused liquidity withdrawal. Our results suggest that the illegal spoofing behavior of a single trader, Navinder Sarao, had little impact on market prices, but that the combined effects of large sell orders and widespread liquidity withdrawal caused prices to collapse.

Keywords: High-frequency trading, market microstructure, Flash Crash, financial market regulation.

JEL Classification: C32, C55, G14, G17, G28.

Suggested Citation

Aldrich, Eric Mark and Grundfest, Joseph A. and Laughlin, Gregory, The Flash Crash: A New Deconstruction (March 26, 2017). Available at SSRN: or

Eric Mark Aldrich (Contact Author)

University of California, Santa Cruz ( email )

Santa Cruz, CA 95064
United States
831-459-4247 (Phone)


Joseph A. Grundfest

Stanford University Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-723-0458 (Phone)
650-723-8229 (Fax)

Gregory Laughlin

Yale University ( email )

493 College St
New Haven, CT CT 06520
United States
+1 (203) 436-9405 (Phone)


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