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Market structure or traders’ behavior? An assessment of flash crash phenomena and their regulation based on a multi-agent simulation

Author

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  • Nathalie Oriol

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur)

  • Iryna Veryzhenko

    (LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - CNAM - Conservatoire National des Arts et Métiers [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 theabsence 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’ behavior? An assessment of flash crash phenomena and their regulation based on a multi-agent simulation," Working Papers halshs-01254435, HAL.
  • Handle: RePEc:hal:wpaper:halshs-01254435
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01254435
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    References listed on IDEAS

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    1. Dilip Abreu & Markus K. Brunnermeier, 2003. "Bubbles and Crashes," Econometrica, Econometric Society, vol. 71(1), pages 173-204, January.
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    3. Olivier Brandouy & Philippe Mathieu & Iryna Veryzhenko, 2013. "On the Design of Agent-based Artificial Stock Markets," Post-Print hal-00826419, HAL.
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    More about this item

    Keywords

    flash crash; limit order book; technical trading; Agent-based modeling; zero-intelligence trader;
    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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