Order Aggressiveness and Flash Crashes

60 Pages Posted: 23 Aug 2017 Last revised: 6 Aug 2020

See all articles by Khaladdin Rzayev

Khaladdin Rzayev

University of Edinburgh; Koc University

Gbenga Ibikunle

University of Edinburgh; European Capital Markets Cooperative Research Centre

Date Written: August 21, 2017

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.

Keywords: order aggressiveness, flash crashes, high-frequency traders, volatility, high-frequency data.

JEL Classification: G14, G15, G18

Suggested Citation

Rzayev, Khaladdin and Ibikunle, Gbenga, Order Aggressiveness and Flash Crashes (August 21, 2017). Available at SSRN: https://ssrn.com/abstract=3023230 or http://dx.doi.org/10.2139/ssrn.3023230

Khaladdin Rzayev (Contact Author)

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

Koc University ( email )

Rumelifeneri Yolu
34450 Sar?yer
Istanbul, 34450
Turkey

Gbenga Ibikunle

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

European Capital Markets Cooperative Research Centre ( email )

Viale Pidaro 42
Pescara, 65121
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
127
Abstract Views
884
rank
272,537
PlumX Metrics