Mini flash crashes: Review, taxonomy and policy responses

Floris Laly and Mikael Petitjean
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Floris Laly: Université catholique de Louvain, LIDAM/LFIN, Belgium

No 2021017, LIDAM Reprints LFIN from Université catholique de Louvain, Louvain Finance (LFIN)

Abstract: We focus on extreme price movements known as mini flash crashes (MFCs). After reviewing the literature, we provide a taxonomy based on a sample of MFCs identified by Nanex on the U.S. financial markets over a three-year period. We detect significant differences between crashes and exchanges. In comparison to ‘up crashes’, we find that ‘down crashes’ exhibit lower absolute returns but have longer duration. We also show that the dynamics of MCFs varies across exchanges. For example, the MFCs on ARCA are on average both less severe and shorter in duration than those on the NASDAQ. We finally review all the key implications of MCFs in terms of public policy.

Keywords: mini flash crash; extreme price movement; high frequency trading; liquidity; policy responses; financial stability (search for similar items in EconPapers)
JEL-codes: G18 G28 (search for similar items in EconPapers)
Pages: 33
Date: 2021-07-01
Note: In: Bulletin of Economic Research, 2020, vol. 72(3), p. 251-271
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Related works:
Journal Article: Mini flash crashes: Review, taxonomy and policy responses (2020)
Working Paper: Mini flash crashes: Review, taxonomy and policy responses (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ajf:louvlr:2021017

DOI: 10.1111/boer.12221

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