The Phases and Catalysts of Mini Flash Crashes

44 Pages Posted: 14 Sep 2020

See all articles by Megan Shearer

Megan Shearer

University of Michigan at Ann Arbor - Horace H. Rackham School of Graduate Studies; University of Michigan, Ann Arbor

Date Written: August 24, 2020

Abstract

Mini flash crashes are rapid volatility events reminiscent of the May 6, 2010 Flash Crash in the US stock market. The frequency of mini flash crashes and their similarity to the Flash Crash provide an avenue to study patterns in order and trade activity during smaller volatility events to gain greater insight into potential activity during larger volatility events. I find a set of potential mini flash crashes using a two-step process. I then divide each mini flash crash into phases, where I define a phase as a stage with the same price directionality. Splitting each mini flash crash into phases facilitates a more dynamic and granular examination of order and trade activity during different stages of a mini flash crash. Using Daily TAQ data, I find that the proportion of sell Inter-market Sweep Orders increases before the price begins to drop. This result suggests that some participants may exacerbate mini flash crashes with certain order and trade practices. Using off-exchange sub-penny trades as a proxy for retail activity, I find a significant increase in volume potentially initiated by retail sell orders executed at or near the lowest price of the mini flash crash, which may indicate that retail investors could be particularly subject to harm during these events.

Keywords: Mini Flash Crash, Flash Crash, Market Micro-structure

JEL Classification: G10, G14

Suggested Citation

Shearer, Megan, The Phases and Catalysts of Mini Flash Crashes (August 24, 2020). Available at SSRN: https://ssrn.com/abstract=3434728 or http://dx.doi.org/10.2139/ssrn.3434728

Megan Shearer (Contact Author)

University of Michigan at Ann Arbor - Horace H. Rackham School of Graduate Studies ( email )

701 Tappan Street
Ann Arbor, MI 48709-1220
United States

University of Michigan, Ann Arbor ( email )

2350 Hayward Street
Ann Arbor, MI 48109
United States

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