Order aggressiveness and flash crashes

We present a novel framework illustrating the links between order aggressiveness and flash crashes. Our framework involves a trading sequence beginning with significant increases in aggressive sell orders relative to aggressive buy orders until instruments' prices fall to their lowest levels. Thereafter, a rise in aggressive buy orders propels prices back to their pre-crash levels. Using a sample of S&P 500 stocks trading during the May 6, 2010, flash crash, we show that our framework is correctly specified and provide a basis for linking flash crashes to aggressive strategies, which are found to be more profitable during flash crashes.