Economists still cannot explain the causes of flash crashes

Evidence

Perhaps more distressing, a month later, the government investigators and financial economists were no more the wiser as to the real causes of the whipsaw movement. What was more disconcerting was that a brawl subsequently broke out among economists over which of the myriad “innovations” in trading may have been the culprit: high-frequency automated trading, the dispersal of trades among numerous for-profit exchanges, robo-trading in general, the practice of “stub quotes,” the role of exchange-traded funds, and so forth. Other, smaller flash crashes have occurred in financial markets since then, among which may be counted the BATS IPO fiasco and the Knight Capital spasm. Distressingly, no consensus interpretation of the flash crashes has taken hold among economists. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 547

Categorization

• XREF: Echoes the wider theme that the neoclassical thought collective is a ‘disassembled’ discipline after 2008. — connects to: Flash crash prices so unreliable that 27 percent of trades required cancellation — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 547; Mainstream economic models cannot explain when bubbles start or stop — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 519; Economists had no consensus explanation for the 2008 financial crisis — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 448 (+1 more)

Broader Connections

• Economists had no consensus explanation for the 2008 financial crisis #corroborates (0.85) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 448
• Mainstream economic models cannot explain when bubbles start or stop #expands (0.82) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 519