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- Title
The Flash Crash: A Cautionary Tale About Highly Fragmented Markets.
- Authors
Menkveld, Albert J.; Yueshen, Bart Zhou
- Abstract
A breakdown of cross-market arbitrage activity could make markets more fragile and result in price crashes. We provide suggestive evidence for this novel channel based on a high-frequency analysis of the most salient crash in recent history: The Flash Crash. We further show that such an event can be extremely costly for a large seller trading in a particular venue as the seller effectively relies on local liquidity supply only. These findings highlight the vulnerability of today's highly fragmented markets. This paper was accepted by Gustavo Manso, finance.
- Subjects
MARKETS; ARBITRAGE; DEALERS (Retail trade); TELEMARKETING
- Publication
Management Science, 2019, Vol 65, Issue 10, p4470
- ISSN
0025-1909
- Publication type
Article
- DOI
10.1287/mnsc.2018.3040