ECB paper models causes of flash crashes

The European Central Bank

High-frequency trading in asset markets can cause informational asymmetries which may lead to "flash crashes", a working paper published by the European Central Bank argues.

In High frequency trading and fragility, Giovanni Cespa and Xavier Vives present a model of an asset trading market. Limited market participation and "an informational friction resulting from high-frequency trading" can lead to traders' liquidity consumption decisions showing "strategic complementarities".

This means, the au