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Order aggressiveness and flash crashes

Khaladdin Rzayev and Gbenga Ibikunle

International Journal of Finance & Economics, 2021, vol. 26, issue 2, 2647-2673

Abstract: We present a novel framework illustrating the links between order aggressiveness and flash crashes. Our framework involves a trading sequence beginning with significant increases in aggressive sell orders relative to aggressive buy orders until instruments' prices fall to their lowest levels. Thereafter, a rise in aggressive buy orders propels prices back to their pre‐crash levels. Using a sample of S&P 500 stocks trading during the May 6, 2010, flash crash, we show that our framework is correctly specified and provide a basis for linking flash crashes to aggressive strategies, which are found to be more profitable during flash crashes.

Date: 2021
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