Market structure or traders’ behavior? 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: LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - CNAM - Conservatoire National des Arts et Métiers [CNAM]

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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 theabsence 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: flash crash; limit order book; technical trading; Agent-based modeling; zero-intelligence trader (search for similar items in EconPapers)
Date: 2015-05-01
New Economics Papers: this item is included in nep-cmp and nep-mst
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01254435v1
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Working Paper: Market Structure or Traders' Behaviour? An Assessment of Flash Crash Phenomena and their Regulation based on a Multi-agent Simulation (2015)
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