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
Date Written: October 2016
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: Suggested Citation