Grants

DKK 6.2 million from DFF for research into surprising price declines

Professor of economics Kim Christensen receives DKK 6.2 million from the Independent Research Fund Denmark for his research project about sudden price declines in financial markets.

Kim Christensen
Professor of economics Kim Christensen Photo: AU

This time, the Independent Research Fund Denmark (DFF) has awarded a total of DKK 55 million in research grants for AU. Of these, 14.7 million go to researchers at Aarhus BSS, including professor of economics Kim Christensen and senior researcher Oleguer Plana-Ripoll.

Kim Christensen receives a DFF Research Project 2 grant of DKK 6.2 million within Society and Business. His project entitled ‘Disruptive forces in financial markets’ explores how we can avoid significant and very fast price declines in financial assets – called flash crashes – and thereby gain more robust financial markets.

Kim Christensen describes the project as follows:

“In recent years, there has been a series of highly unusual flash crashes in financial markets. A flash crash is a significant and very fast price decrease in financial assets, followed by partial or complete recovery. Flash crashes usually occur without news that can explain the original price decrease. For this reason, great confusion reigns as to why flash crashes happen. However, there is growing consensus that flash crashes appear more frequently and across financial markets, and this weakens trust in the financial system. Computerised high-frequency trading has been accused of causing flash crashes, but our understanding of the causes as well as long-term consequences of flash crashes remain poorly understood.

Recent research has proposed a theoretical description of flash crashes called the drift burst hypothesis. This means we are able to begin a more systematic analysis of flash crashes than what was previously possible. We deploy the theoretical framework to reach a more nuanced understanding of the causes of flash crashes and their real-economic impact. We also strengthen the drift burst hypothesis with a far-reaching theoretical foundation. Finally, we examine related events which – taken together – are best described as disruptive to financial markets.

Our research makes it possible to reduce the number of flash crashes in the future and build more robust financial markets.”