Based on the integration of two disciplinary fields (MIS and finance), this paper focuses on the micro-foundations of intraday crashes, considered as socio-technical failures. While defining financial markets as complex adaptive systems, this paper raises the following research question: How can IS characteristics and architecture (and their related trading techniques) explain the differences in the nature of financial crashes since 1900? A historical analysis allows us to identify four historical periods which each links micro-characteristics (such as IS characteristics and architecture as well as speed and volume of traded transactions and traders’ technologicallybased strategies) to the macro-emergence of extreme phenomena (crashes). An historical approach is used to calibrate an agent-based model in order to contribute to a better understanding of systemic issues raised by financial institutions and regulatory agencies. Our results contrast with the general opinion that high-frequency traders provoke financial instability because of their use of automated trading based on speed and increasing number of traded transactions. We show that the introduction of heterogeneous high-frequency traders does not necessary amplify the depth of the crash as some of them play a role of liquidity providers and do not follow chartist-based strategies.
Arena, Lise; ORIOL, Nathalie; and Veryzhenko, Iryna, "FROM THE PIT TO MILLIONS OF BITS: EXPLORING STOCK MARKET CRASHES AS SOCIO-TECHNICAL FAILURES THROUGH A HISTORY-FRIENDLY AGENT-BASED MODEL" (2020). In Proceedings of the 28th European Conference on Information Systems (ECIS), An Online AIS Conference, June 15-17, 2020.
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