Stock price crashes: role of slow-moving capital

  • We study the role of various trader types in providing liquidity in spot and futures markets based on complete order-book and transactions data as well as cross-market trader identifiers from the National Stock Exchange of India for a single large stock. During normal times, short-term traders who carry little inventory overnight are the primary intermediaries in both spot and futures markets, and changes in futures prices Granger-cause changes in spot prices. However, during two days of fast crashes, Granger-causality ran both ways. Both crashes were due to large-scale selling by foreign institutional investors in the spot market. Buying by short-term traders and cross-market traders was insufficient to stop the crashes. Mutual funds, patient traders with better trade-execution quality who were initially slow to move in, eventually bought sufficient quantities leading to price recovery in both markets. Our findings suggest that market stability requires the presence of well-capitalized standby liquidity providers.

Download full text files

Export metadata

Additional Services

Share in Twitter Search Google Scholar
Metadaten
Author:Mila Getmansky, Ravi Jagannathan, Loriana PelizzonORCiDGND, Ernst Schaumburg, Darya Yuferova
URN:urn:nbn:de:hebis:30:3-472396
URL:https://ssrn.com/abstract=3239440
DOI:https://doi.org/10.2139/ssrn.3239440
Parent Title (English):SAFE working paper series ; No. 227
Series (Serial Number):SAFE working paper series (227)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2018
Year of first Publication:2018
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2018/09/05
Tag:Flash Crash; Liquidity Provision; Market Fragility; Slow-Moving Capital
Issue:July 16, 2018
Page Number:64
HeBIS-PPN:436696843
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universit├Ątspublikationen
Licence (German):License LogoDeutsches Urheberrecht