V-shapes

48 Pages Posted: 24 Mar 2020 Last revised: 5 May 2021

See all articles by Maria Flora

Maria Flora

CREST, ENSAE, Institut Polytechnique de Paris; CNRS (Centre National de la Recherche Scientifique)

Roberto Renò

University of Verona - Department of Economics

Date Written: March 13, 2020

Abstract

An insidious form of market inefficiency, by which prices lose their informativeness and wealth is distributed arbitrarily, translates into V-shapes, that is sudden changes of the sign of the price drift. We use this insight to develop the V-statistic, a new tool for the detection of market dysfunctions and price anomalies. We apply this tool to (i) detect mini-flash crashes, such as those used by the SEC in legal charges against financial intermediaries; (ii) estimate the loss suffered by the Italian Treasury (0.45B euros) in May 2018, when a transient crash hit the secondary bond market during a sovereign auction.

Keywords: Market inefficiency, mini-flash crashes, financial fragility, price drift.

JEL Classification: G14, G12, C58

Suggested Citation

Flora, Maria and Renò, Roberto, V-shapes (March 13, 2020). Available at SSRN: https://ssrn.com/abstract=3554122 or http://dx.doi.org/10.2139/ssrn.3554122

Maria Flora (Contact Author)

CREST, ENSAE, Institut Polytechnique de Paris ( email )

5 avenue Henry Le Chatelier
Palaiseau, 91764
France

CNRS (Centre National de la Recherche Scientifique) ( email )

Palaiseau
France

Roberto Renò

University of Verona - Department of Economics ( email )

Via dell'Artigliere, 8
37129 Verona
Italy

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