Bridge over ocean
1 July 2012 Financial Analysts Journal Volume 68, Issue 4

Exchange-Traded Funds, Market Structure, and the Flash Crash

  1. Ananth Madhavan, PhD

The author analyzes the relationship between market structure and the flash crash. The proliferation of trading venues has resulted in a market that is more fragmented than ever. The author constructs measures to capture fragmentation and shows that they are important in explaining extreme price movements. New market structure reforms should help mitigate such market disruptions in the future but have not eliminated the possibility of another flash crash, albeit with a different catalyst.

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