Impact and Recovery Process of Mini Flash Crashes: An Empirical Study

13 Pages Posted: 26 Jul 2017

See all articles by Tobias Braun

Tobias Braun

University of Duisburg-Essen

Jonas Fiegen

University of Duisburg-Essen

Daniel Wagner

University of Duisburg-Essen

Sebastian Krause

University of Duisburg-Essen

Thomas Guhr

University of Duisburg-Essen

Date Written: July 18, 2017

Abstract

In an Ultrafast Extreme Event (or Mini Flash Crash), the price of a traded stock increases or decreases strongly within milliseconds. We present a detailed study of Ultrafast Extreme Events in stock market data. In contrast to popular belief, our analysis suggests that most of the Ultrafast Extreme Events are not primarily due to High Frequency Trading. In at least 60 percent of the observed Ultrafast Extreme Events, the main cause for the events are large market orders. In times of financial crisis, large market orders are more likely which can be linked to the significant increase of Ultrafast Extreme Events occurrences. Furthermore, we analyze the 100 trades following each Ultrafast Extreme Events. While we observe a tendency of the prices to partially recover, less than 40 percent recover completely. On the other hand we find 25 percent of the Ultrafast Extreme Events to be almost recovered after only one trade which differs from the usually found price impact of market orders.

Keywords: Econophysics, Ultrafast Extreme Event, Flash Crash, High Frequency Trading, Recovery Rate

JEL Classification: G01

Suggested Citation

Braun, Tobias and Fiegen, Jonas and Wagner, Daniel and Krause, Sebastian and Guhr, Thomas, Impact and Recovery Process of Mini Flash Crashes: An Empirical Study (July 18, 2017). Available at SSRN: https://ssrn.com/abstract=3008502 or http://dx.doi.org/10.2139/ssrn.3008502

Tobias Braun (Contact Author)

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

Jonas Fiegen

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

Daniel Wagner

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

Sebastian Krause

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

Thomas Guhr

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

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