Ultrafast Extreme Events: Empirical Analysis of Mechanisms and Recovery in a Historical Perspective

ArXiv ID: 2509.10376 “View on arXiv”

Authors: Luca Henrichs, Anton J. Heckens, Thomas Guhr

Abstract

To understand the emergence of Ultrafast Extreme Events (UEEs), the influence of algorithmic trading or high-frequency traders is of major interest as they make it extremely difficult to intervene and to stabilize financial markets. In an empirical analysis, we compare various characteristics of UEEs over different years for the US stock market to assess the possible non-stationarity of the effects. We show that liquidity plays a dominant role in the emergence of UEEs and find a general pattern in their dynamics. We also empirically investigate the after-effects in view of the recovery rate. We find common patterns for different years. We explain changes in the recovery rate by varying market sentiments for the different years.

Keywords: Ultrafast Extreme Events (UEEs), High-Frequency Trading, Market Microstructure, Liquidity, Algorithmic Trading

Complexity vs Empirical Score

  • Math Complexity: 3.5/10
  • Empirical Rigor: 8.0/10
  • Quadrant: Street Traders
  • Why: The paper is fundamentally an empirical analysis using real high-frequency trade and quote data (TAQ) with statistical calculations and visualizations, but the mathematics is largely descriptive statistics and basic formulas, lacking advanced theoretical modeling.
  flowchart TD
    A["Research Goal:<br>Analyze UEE mechanisms,<br>liquidity role, and recovery"] --> B["Data: US Stock Market<br>Historical Transaction Data"]
    B --> C["Methodology: Empirical Analysis<br>Compare UEE characteristics across years"]
    C --> D["Computation:<br>Identify UEEs & quantify liquidity"]
    D --> E["Outcome 1: Liquidity dominant<br>in UEE emergence"]
    D --> F["Outcome 2: Common dynamic<br>patterns identified"]
    D --> G["Computation:<br>Analyze post-event recovery rates"]
    G --> H["Outcome 3: Recovery rate<br>correlates with market sentiment"]
    E --> I["Conclusion: Insights into<br>market microstructure & HFT impact"]
    F --> I
    H --> I