Market Microstructure Design and Flash Crashes: A Simulation Approach
Abstract
We study consequences of regulatory interventions in limit order markets that aim at stabilizing the market after an occurrence of a "flash crash". We use a simulation platform that creates random arrivals of trade orders, that allows us to analyze subtle features of liquidity and price variability under various market structures. The simulations are performed under continuous double-auction microstructure, and under alternatives, including imposing minimum resting times, shutting off trading for a period of time, and switching to call auction mechanisms. We find that the latter is the most effective in restoring the liquidity of the book and recovery of the price level. However, one has to be cautious about possible long term consequences of the intervention on the traders' strategies.
Additional Information
The authors would like to gratefully acknowledge the support of the Caltech Laboratory for Experimental Economics and Political Science (EEPS), and the Gordon and Betty Moore Foundation.Attached Files
Submitted - sswp1365.pdf
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Additional details
- Eprint ID
- 79481
- Resolver ID
- CaltechAUTHORS:20170727-091614199
- Caltech Laboratory for Experimental Economics and Political Science
- Gordon and Betty Moore Foundation
- Created
-
2017-08-07Created from EPrint's datestamp field
- Updated
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2019-10-03Created from EPrint's last_modified field
- Caltech groups
- Social Science Working Papers
- Series Name
- Social Science Working Paper
- Series Volume or Issue Number
- 1365