Why the ‘flash crash’ nine years ago this month matters today
What momentous, stock market-shaking event took place nine years ago this month? Answer: the “Flash Crash.”
The most important of those lessons is that market crashes — though rare — are inevitable. Those of us who fail to appreciate that are therefore shocked whenever the market hits an air pocket — like it did on Monday of this week when the Dow lost more than 600 points. Gabaix’s finding will come as a shock to those who have comforted themselves with the belief that government regulators have figured out what caused the Flash Crash and have instituted safeguards to prevent another one. Gabaix’s research suggests that this belief represents a triumph of hope over experience.
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