Large Bets and Stock Market Crashes

Albert Kyle () and Anna Obizhaeva ()
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Albert Kyle: Robert H. Smith School of Business, University of Maryland
Anna Obizhaeva: New Economic School

No w0227, Working Papers from New Economic School (NES)

Abstract: For five stock market crashes, we compare price declines with predictions from market microstructure invariance. During the 1987 crash and the sales by Soci?et?e G?en?erale in 2008, prices fell by magnitudes similar to predictions from invariance. Larger-than-predicted temporary price declines during two flash crashes suggest rapid selling exacerbates transitory price impact. Smaller-than-predicted price declines for the 1929 crash suggest slower selling stabilized prices and less integration made markets more resilient. Quantities sold in the three largest crashes suggest fatter tails or larger variance than the log-normal distribution estimated from portfolio transitions data.

Keywords: finance; market microstructure; invariance; crashes; liquidity; price impact; market depth; systemic risk (search for similar items in EconPapers)
JEL-codes: G01 G28 N22 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2016-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:abo:neswpt:w0227

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