Fat-Finger Trade and Market Quality: The First Evidence from China

Journal of Futures Markets, Vol. 36, No. 10, 2016

24 Pages Posted: 7 Sep 2019

See all articles by Ming Gao

Ming Gao

Peking University - School of Economics

Yu-Jane Liu

Peking University - Guanghua School of Management

Weili Wu

Peking University - Guanghua School of Management

Date Written: October 2016

Abstract

More trading is algorithmic or computer generated, and in markets where it is allowed, high frequency. However, what happens when there is an algorithmic trading error? This study attempts to answer that question by examining the August 16, 2013, fat‐finger trade in Chinese equity and equity futures markets. We find that both markets were excessively volatile, illiquid, and positively skewed. Moreover, we document that index returns are predictable for a short time, indicating that the fat‐finger event induced an inefficient market. Our results highlight the importance of market surveillance and regulation to lessen the damage of future fat‐finger events.

Keywords: Fat-finger trade; Price distortion; Market volatility; Liquidity

JEL Classification: G14

Suggested Citation

Gao, Ming and Liu, Yu-Jane and Wu, Weili, Fat-Finger Trade and Market Quality: The First Evidence from China (October 2016). Journal of Futures Markets, Vol. 36, No. 10, 2016. Available at SSRN: https://ssrn.com/abstract=3446035

Ming Gao (Contact Author)

Peking University - School of Economics ( email )

Beijing, 100871
China

HOME PAGE: http://scholar.pku.edu.cn/gao

Yu-Jane Liu

Peking University - Guanghua School of Management ( email )

Beijing
China

Weili Wu

Peking University - Guanghua School of Management ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

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