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Would Position Limits Have Made Any Difference To The 'Flash Crash' On May 6, 2010, Wing Bernard Lee, Shih-Fen Cheng, Annie Koh
Would Position Limits Have Made Any Difference To The 'Flash Crash' On May 6, 2010, Wing Bernard Lee, Shih-Fen Cheng, Annie Koh
Shih-Fen CHENG
On May 6, 2010, the US equity markets experienced a brief but highly unusual drop in prices across a number of stocks and indices. The Dow Jones Industrial Average (DJIA) fell by approximately 9% in a matter of minutes, and several stocks were traded down sharply before recovering a short time later. Earlier research by Lee, Cheng and Koh (2010) identified the conditions under which a “flash crash” can be triggered by systematic traders running highly similar trading strategies, especially when they are “crowding out” other liquidity providers in the market. The authors contend that the events of May 6, …