Anatomy of the Flash Crash

Albert Menkveld (VU Amsterdam)
Wednesday, June 19, 2013 - 2:00pm
Spandauer Strasse 1, Room 203

This paper analyzes the May 6 2010 Flash Crash using public and proprietary trade data on E-mini (S&P500 future) and SPY (S&P500 ETF). Price cointegration broke down one minute before the E-mini halt and prices collapsed. A large seller, whose E-mini trading reportedly contributed to the crash, was relatively inactive in this period. Her net sells were only 4% of total E-mini net sells. Yet, their long-run price impact was 19 times higher. Most of it kicks in after 300 milliseconds when other traders suddenly aggressively sell. Further findings are (i) the large seller paid a disproportionately large ‘price pressure’, (ii) before the halt, she did not find ‘fundamental buyers’ in the E-mini market, after the halt she did (perhaps necessarily so due to broken arbitrage), and (iii) she sold more aggressively when bid depth was large, after positive midquote returns, and the more she fell short of a 9% volume target.