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The Flash Crash: Trading Aggressiveness, Liquidity Supply, and the Impact of Intermarket Sweep Orders
Author(s) -
McInish Tom,
Upson James,
Wood Robert A.
Publication year - 2014
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12047
Subject(s) - crash , market liquidity , monetary economics , stock market crash , volatility (finance) , stock (firearms) , economics , stock market , business , financial economics , materials science , computer science , paleontology , horse , metallurgy , biology , programming language
During the Flash Crash on May 6, 2010, a short period of high stock market volatility, some stock prices declined to $0.01, while others increased to $100,000. Examining Intermarket Sweep Orders (ISOs) before, on, and after May 6, we find that ISO use is substantially higher on May 6. For those stocks whose prices fell the most, over 65% of the sell volume comes from ISOs. During the price recovery period for these stocks, about 53% of the buy volume comes from ISOs. We believe that the unusual behavior of ISOs contributed to the sudden drop and recovery of the market.