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Albert Menkveld Sheds Light on 2010’s Flash Crash

The Netherlands- Amsterdam | Mar 26 2013 | (22:57:29 - EDT)

On May 6, 2010 the key indicator of the American stock market, the S&P500, lost five percent of its value in one minute. Minutes later, the market fully recovered. This "Flash Crash" continues to play one’s imagination. The enormous media attention that followed has also increased the pressure on the regulators of securities markets to "do something."

Albert Menkveld, Professor in Finance at VU University Amsterdam, had exclusive access to the "black box" with data of this Flash Crash. On Tuesday, April 2 he will present new facts in his inaugural lecture, "Why not replace bankers by robots? Evidence from securities trading." He will incorporate his findings into a vision on modern securities markets, the subject of his chair.

Menkveld is the first University Research Chair Professor appointed at VU University to give his inaugural lecture. The report of his research on the Flash Crash will be available online on April 2 at 16:45 (CET).

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Algorithmic stock trading by "tradebots"

In the last decades, the securities markets have become increasingly computerized. The trading floor has been replaced by a computer that generates transactions by matching incoming buy and sell orders. Until recently, these orders mostly came from traders that entered them into their computers. That, however, is also history, since traders delegated generating orders to computers, so-called "tradebots."

Securities trading has therefore become "algorithmic" and tradebots trade faster than humans. For example, the brains of monkeys only respond to a visual stimulus after one hundred milliseconds, whereas tradebots only need less than one millisecond. Assuming that humans are not much faster than monkeys, this suggests that tradebots can interact one hundred times before we can even ‘see’ what happened, let alone respond to it.

Was the Flash Crash a by-product of algorithmic trading? Do machines respond to each other before we even realize what is going on and before we can interfere? The prize-winning iPad documentary "Money & Speed" shows the user the Flash Crash from various perspectives. Menkveld will show a fragment of the documentary in his inaugural lecture.

University Research Chair

Menkveld is a member of the Group of Economic Advisors of the European Securities and Markets Authority, the supervisor of the European securities markets. He wrote the section market structure of the Foresight project presented by the British government in 2012. Menkveld is one of the first five University Research Chair Professors at VU University.

With this program VU University recognizes outstanding scientists who are considered prospective leaders in their field. They are selected for their excellence in scientific research and potential for the future. The other four University Research Chair Professors are Arianna Betti, Davide Iannuzzi, Erwin Peterman and Wim van Westrenen. They will give their inaugural lectures later this year.

Source and Image Courtesy: VU University

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