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Order aggressiveness and flash crashes

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  • Khaladdin Rzayev
  • Gbenga Ibikunle

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.

Suggested Citation

  • Khaladdin Rzayev & Gbenga Ibikunle, 2021. "Order aggressiveness and flash crashes," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2647-2673, April.
    • Handle: RePEc:wly:ijfiec:v:26:y:2021:i:2:p:2647-2673
    DOI: 10.1002/ijfe.1926
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    References listed on IDEAS

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