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Market Structure or Traders' Behaviour? An Assessment of Flash Crash Phenomena and their Regulation based on a Multi-agent Simulation

Author

Listed:
  • Nathalie Oriol

    (University of Nice Sophia Antipolis, France
    GREDEG CNRS)

  • Iryna Veryzhenko

    (Labex ReFi
    LIRSA-CNAM)

Abstract

This paper aims at studying the flash crash caused by an operational shock with different market participants. We reproduce this shock in artificial market framework to study market quality in different scenarios, with or without strategic traders. We show that traders’ srategies influence the magnitude of the collapse. But, with the help of zero-intelligence traders framework, we show that despite the absence of market makers, the order-driven market is resilient and favors a price recovery. We find that a short-sales ban imposed by regulator reduces short-term volatility.

Suggested Citation

  • Nathalie Oriol & Iryna Veryzhenko, 2015. "Market Structure or Traders' Behaviour? An Assessment of Flash Crash Phenomena and their Regulation based on a Multi-agent Simulation," GREDEG Working Papers 2015-16, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    • Handle: RePEc:gre:wpaper:2015-16
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Agent-based Modeling; Zero-intelligence Trader; Limit order book; Technical trading; Flash crash;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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