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Too Fast, Too Furious? Algorithmic Trading and Financial Instability

Author

Listed:
  • Lise Arena

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur)

  • Nathalie Oriol

    (LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - CNAM - Conservatoire National des Arts et Métiers [CNAM] - HESAM - HESAM Université - Communauté d'universités et d'établissements Hautes écoles Sorbonne Arts et métiers université, GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur)

  • Iryna Veryzhenko

    (LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - CNAM - Conservatoire National des Arts et Métiers [CNAM] - HESAM - HESAM Université - Communauté d'universités et d'établissements Hautes écoles Sorbonne Arts et métiers université)

Abstract

To what extent can algorithmic trading-based strategies explain the propagation of flash crashes on financial markets? This question has to be discussed at the intersection of two disciplinary fields: management of information systems and finance. Built on realistic assumptions on traders' strategies, on their use of algorithmic information systems and considering the role of transactions systems at the market level, an agent-based approach is presented. Final results show that speed-oriented trading strategies and the increasing use of new trading technologies can arm markets' stability and resiliency, facing intraday operational shocks. The article also shows the central role played by transactions systems in the propagation of flash crashes, when a new regulation based on the principle of decimalization is introduced.

Suggested Citation

  • Lise Arena & Nathalie Oriol & Iryna Veryzhenko, 2018. "Too Fast, Too Furious? Algorithmic Trading and Financial Instability," Post-Print halshs-01789636, HAL.
    • Handle: RePEc:hal:journl:halshs-01789636
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01789636
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    Cited by:

    1. Frédéric Marty & Thierry Warin, 2023. "Deciphering Algorithmic Collusion: Insights from Bandit Algorithms and Implications for Antitrust Enforcement," CIRANO Working Papers 2023s-26, CIRANO.

    More about this item

    Keywords

    Information technologies; Flash crash; Agent-based approach; High frequency trading strategies;
    All these keywords.

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