The Flash Crash: An Examination Of Shareholder Wealth And Market Quality
We investigate stock returns, market quality, and options market activity around the ﬂash crash of May 6, 2010. Abnormal returns are negative on the day of and the day after the ﬂash crash for stocks that had trades that executed during the crash subsequently cancelled by either Nasdaq or NYSE Arca. Consistent with studies that suggest that other sources of liquidity withdrew from the markets during the ﬂash crash, we ﬁnd that the fraction of trades executed by the NYSE increases during this volatile period. Market quality deteriorates following the ﬂash crash as bid-ask spreads increase and quote depths decrease. Evidence from the options markets indicates that investor uncertainty increased around the time of the crash and remained elevated for several days.