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Fat‐Finger Trade and Market Quality: The First Evidence From China

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  • Ming Gao
  • Yu‐Jane Liu
  • Weili Wu

Abstract

More trading is algorithmic or computer generated, and in markets where it is allowed, high frequency. However, what happens when there is an algorithmic trading error? This study attempts to answer that question by examining the August 16, 2013, fat‐finger trade in Chinese equity and equity futures markets. We find that both markets were excessively volatile, illiquid, and positively skewed. Moreover, we document that index returns are predictable for a short time, indicating that the fat‐finger event induced an inefficient market. Our results highlight the importance of market surveillance and regulation to lessen the damage of future fat‐finger events. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 36:1014–1025, 2016

Suggested Citation

  • Ming Gao & Yu‐Jane Liu & Weili Wu, 2016. "Fat‐Finger Trade and Market Quality: The First Evidence From China," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(10), pages 1014-1025, October.
    • Handle: RePEc:wly:jfutmk:v:36:y:2016:i:10:p:1014-1025
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    Cited by:

    1. Salman Bahoo & Marco Cucculelli & Xhoana Goga & Jasmine Mondolo, 2024. "Artificial intelligence in Finance: a comprehensive review through bibliometric and content analysis," SN Business & Economics, Springer, vol. 4(2), pages 1-46, February.
    2. Xu, Yanyan & Huang, Dengshi & Ma, Feng & Qiao, Gaoxiu, 2019. "Liquidity and realized range-based volatility forecasting: Evidence from China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 525(C), pages 1102-1113.
    3. Xu, Yanyan & Huang, Dengshi & Ma, Feng & Qiao, Gaoxiu, 2019. "The heterogeneous impact of liquidity on volatility in Chinese stock index futures market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 517(C), pages 73-85.
    4. Jin, Miao & Liu, Yu-Jane & Meng, Juanjuan, 2019. "Fat-finger event and risk-taking behavior," Journal of Empirical Finance, Elsevier, vol. 53(C), pages 126-143.

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