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Algorithmic trading and mini flash crashes: Evidence from Austria

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  • Mestel, Roland
  • Steffen, Viktoria
  • Theissen, Erik

Abstract

We use stock-day level data on the market share of algorithmic trading to analyze whether algorithmic trading affects the frequency of mini flash crashes in the Austrian stock market. We use an instrumental variables approach and the Petrin and Train (2010) control function approach to address endogeneity concerns. We find no evidence that algorithmic trading significantly affects the probability of the occurrence of mini flash crashes.

Suggested Citation

  • Mestel, Roland & Steffen, Viktoria & Theissen, Erik, 2024. "Algorithmic trading and mini flash crashes: Evidence from Austria," Economics Letters, Elsevier, vol. 244(C).
    • Handle: RePEc:eee:ecolet:v:244:y:2024:i:c:s016517652400466x
    DOI: 10.1016/j.econlet.2024.111982
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    References listed on IDEAS

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    1. Tobias Braun & Jonas A Fiegen & Daniel C Wagner & Sebastian M Krause & Thomas Guhr, 2018. "Impact and recovery process of mini flash crashes: An empirical study," PLOS ONE, Public Library of Science, vol. 13(5), pages 1-11, May.
    2. Sandrine Jacob Leal & Mauro Napoletano & Andrea Roventini & Giorgio Fagiolo, 2016. "Rock around the clock: An agent-based model of low- and high-frequency trading," Journal of Evolutionary Economics, Springer, vol. 26(1), pages 49-76, March.
    3. Anton Golub & John Keane & Ser-Huang Poon, 2012. "High Frequency Trading and Mini Flash Crashes," Papers 1211.6667, arXiv.org.
    4. Hasbrouck, Joel & Saar, Gideon, 2013. "Low-latency trading," Journal of Financial Markets, Elsevier, vol. 16(4), pages 646-679.
    5. Goldstein, Michael A. & Kavajecz, Kenneth A., 2004. "Trading strategies during circuit breakers and extreme market movements," Journal of Financial Markets, Elsevier, vol. 7(3), pages 301-333, June.
    6. Gao, Cheng & Mizrach, Bruce, 2016. "Market quality breakdowns in equities," Journal of Financial Markets, Elsevier, vol. 28(C), pages 1-23.
    7. Brogaard, Jonathan & Carrion, Allen & Moyaert, Thibaut & Riordan, Ryan & Shkilko, Andriy & Sokolov, Konstantin, 2018. "High frequency trading and extreme price movements," Journal of Financial Economics, Elsevier, vol. 128(2), pages 253-265.
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    More about this item

    Keywords

    Mini flash crashes; Algorithmic trading;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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