Resilience in “Flash Events” in the Corn and Lean Hog Futures Markets
Teresa Serra and
American Journal of Agricultural Economics, 2021, vol. 103, issue 2, 743-764
The Commodity Futures Trading Commission (CFTC) recently identified large intra‐day price changes or “flash events” in continuously traded commodity futures markets. These flash events fueled discussion on whether futures markets are becoming less effective as human intervention is diminishing in favor of automated trading. Using intra‐day data, we examine liquidity resilience during “flash events” in corn and lean hog futures markets from 2014 to 2019. Overall, we find little evidence that the liquidity provision in these two markets relative to normal days becomes fragile when large price movements occur. Our analysis suggests that flash events are heavily influenced by unanticipated changes in fundamentals that may lead to a new equilibrium price. Liquidity dynamics during these events supports the view that active market making helps absorb the increased volume and stabilize markets.
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Persistent link: https://EconPapers.repec.org/RePEc:wly:ajagec:v:103:y:2021:i:2:p:743-764
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