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Exploring Stock Markets Crashes as Socio-Technical Failures

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  • Nathalie Oriol

    (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)

  • 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)

  • 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

Based on the integration of two disciplinary fields (MIS and finance), this paper focuses on the micro-foundations of flash crashes, considered as socio-technical failures. A historical analysis allows us to identify four historical periods which each links micro-characteristics (such as speed and volume of traded transactions as well as traders’ technologically-based strategies) to the macro-emergence of extreme phenomena (financial crashes). History is used to calibrate an agent-based model in order to contribute to a better understanding of systemic issues raised by financial institutions and regulatory agencies. Our results contrast with the general opinion that high-frequency traders provoke financial instability because of their use of automated trading based on speed and increasing number of traded transactions. We show that the introduction of heterogeneous high-frequency traders does not necessary amplify the depth of the crash as some of them play a role of liquidity providers and do not follow chartist-based strategies.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Nathalie Oriol & Lise Arena & Iryna Veryzhenko, 2017. "Exploring Stock Markets Crashes as Socio-Technical Failures," Post-Print hal-03403429, HAL.
    • Handle: RePEc:hal:journl:hal-03403429
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