Market Structure or Traders' Behaviour? An Assessment of Flash Crash Phenomena and their Regulation based on a Multi-agent Simulation

Nathalie Oriol and Iryna Veryzhenko
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Iryna Veryzhenko: Labex ReFi

No 2015-16, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: This paper aims at studying the flash crash caused by an operational shock with different market participants. We reproduce this shock in artificial market framework to study market quality in different scenarios, with or without strategic traders. We show that traders’ srategies influence the magnitude of the collapse. But, with the help of zero-intelligence traders framework, we show that despite the absence of market makers, the order-driven market is resilient and favors a price recovery. We find that a short-sales ban imposed by regulator reduces short-term volatility.

Keywords: Agent-based Modeling; Zero-intelligence Trader; Limit order book; Technical trading; Flash crash (search for similar items in EconPapers)
JEL-codes: C63 G1 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2015-04
New Economics Papers: this item is included in nep-cmp and nep-mst
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http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2015-16.pdf First version, 2015 (application/pdf)
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Working Paper: Market structure or traders’ behavior? An assessment of flash crash phenomena and their regulation based on a multi-agent simulation (2015)
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