Division of the Humanities and Social Sciences California Institute of Technology Pasadena, California 91125 Market Microstructure Design and Flash Crashes: a Simulation Aproach
نویسندگان
چکیده
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.
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Peter Sokol-Hessner, Colin F. Camerer, and Elizabeth A. Phelps Division of the Humanities and Social Sciences (HSS), California Institute of Technology, Division of the Humanities and Social Sciences (HSS) and Computational and Neural Systems (CNS), California Institute of Technology, 1200 E. California Blvd., Pasadena, CA 91125, USA, and Department of Psychology, New York University, 6 Washing...
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