Impact and Recovery Process of Mini Flash Crashes: An Empirical Study

In an Ultrafast Extreme Event (or Mini Flash Crash), the price of a traded stock increases or decreases strongly within milliseconds. We present a detailed study of Ultrafast Extreme Events in stock market data. In contrast to popular belief, our analysis suggests that most of the Ultrafast Extreme Events are not primarily due to High Frequency Trading. In at least 60 percent of the observed Ultrafast Extreme Events, the main cause for the events are large market orders. In times of financial crisis, large market orders are more likely which can be linked to the significant increase of Ultrafast Extreme Events occurrences. Furthermore, we analyze the 100 trades following each Ultrafast Extreme Events. While we observe a tendency of the prices to partially recover, less than 40 percent recover completely. On the other hand we find 25 percent of the Ultrafast Extreme Events to be almost recovered after only one trade which differs from the usually found price impact of market orders

Absolute count of all UEE occurrences versus the relative price deviations.

<p>It is shown on a linear scale with a bin size of 0.001. The gap around zero is due to the UEE criterion. The double arrows indicate the direction of the price change.</p

Histogram of all flash crashes (spikes) depending on their recovery rate <i>η</i>_<i>n</i>.

<p>It shows the absolute count of all flash crashes (spikes) as level curves over the plane of recovery rate <i>η</i>_<i>n</i> and number of trades <i>n</i> (with 1 ≤ <i>n</i> ≤ 50) after the end of the UEE. Due to better visualization an empty line is added for <i>n</i> = 0.</p

Absolute count of all flash crash (spike) occurrences.

<p>Each UEE is represented by its largest best bid (ask) price jump. The scale is linear.</p

Absolute count on a logarithmic scale of all UEE occurrences versus time with a bin size of one week.

<p>At the end of the third and at the beginning of the last quarter in 2008, the number of UEEs virtually explodes due to the financial crisis.</p

Price time series of a typical UEE to illustrate the definition of the recovery rate <i>η</i>_<i>n</i>.

<p>The shown excerpt is the price time series of AAPL on NASDAQ, 12/01/2008. The vertical lines mark the specific instances , and in time.</p

Occurrences of UEEs depending on their industrial sector (as per Global Industry Classification Standard).

<p>Occurrences of UEEs depending on their industrial sector (as per Global Industry Classification Standard).</p