Flash crashes on sovereign bond markets – EU evidence

Antoine Bouveret (), Martin Haferkorn, Gaetano Marseglia () and Onofrio Panzarino ()
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Antoine Bouveret: European Securities and Markets Authority
Gaetano Marseglia: Bank of Italy
Onofrio Panzarino: Bank of Italy

No 20, Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) from Bank of Italy, Directorate General for Markets and Payment System

Abstract: The development of electronic and automated trading in sovereign bond markets has been accompanied by a more frequent occurrence of flash crashes, i.e. episodes of sudden and abrupt price changes that are to a large extent reversed shortly afterwards. We focus our analysis on two flash events in the German and Italian bond markets and show how liquidity vanished ahead of the crashes, resulting in trades having a large price impact on prices. We document that, during the flash event of 29 May 2018, activity on Italian bonds futures and cash markets diverged: trading activity in futures surged, while it plummeted on the cash market. In addition, we show that the effects of flash events on the liquidity in the affected markets can last up to several weeks. Our findings call for increased monitoring of electronic trading markets, taking into account the pace of financial innovation, and for pursuing more integrated approaches in the presence of highly interlinked markets.

Keywords: Market liquidity; flash crash; sovereign bonds. (search for similar items in EconPapers)
JEL-codes: G01 G10 G12 G18 (search for similar items in EconPapers)
Date: 2022-03
New Economics Papers: this item is included in nep-ban, nep-eec, nep-fmk and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wpmisp:mip_020_22

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