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PetiJeremie_48041200_2018.pdf
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- Abstract
- A new phenomenon has appeared on the financial markets these past years: high-frequency trading. This technique, which mainly consists of selling and buying stocks at high speed, has since begun to be discussed by the financial community. Indeed, the question of the threat that high-frequency can have for the stability and more precisely the volatility of the financial markets is still discussed. On the 6th of May 2010, the largest U.S. stock markets (Nasdaq, S&P 500, Dow Jones Industrial Average) suddenly lost up to 9% of their value within two minutes before rebounding. The fact that this event was caused by high-frequency trading is still discussed. This paper aims at answering this question by analyzing data from several stock markets. In order to do that, we take the price variation of the 10% most and least traded stocks on the Nasdaq, S&P 500 and Dow Jones Industrial Average on the day of the Flash Crash and we look at dissimilarity between the samples. Indeed, high-frequency traders operate on liquid stocks so if there is a significant difference between the most and traded stocks, this would mean that high-frequency trading caused the sudden volatility of the most traded stocks on the 6th of May 2010. Finally, we find that high-frequency does not significantly impact the volatility of the financial markets.