Lessons of the ‘flash crash’

Wed Apr 20, 2011



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Irwin Speizer, contributing writer, AR: Absolute Return + Alpha

Irwin Speizer
The so-called 'flash crash’ in May 2010, that seemed to catch the investment world by surprise with its dizzying market plunge, was not quite so surprising to a pair of Cornell University professors and a futures trader from Tudor Investment Corp. The trio had been testing a new market-liquidity tracking system they developed, and it spotted erratic trading patterns more than an hour before the crash hit.

The team’s system hit its highest liquidity imbalance level ever on the morning of 6 May, just before the Dow Jones average dived nearly 1,000 points in a few minutes, then sprang back to erase much of the loss by the end of the day.

Regulators and investors, both in the US and Europe, have been trying to come to...

ISSN: 2151-1845 / CDC10004H

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