medium · Market Microstructure
If a market has high 'Resiliency', how will the price behave after a large, uninformed 'liquidity shock' (e.g., a massive accidental sell order)?
- The price will quickly revert to its pre-shock level as value traders step in.
- The price will stay at the new lower level because markets are efficient.
- A circuit breaker will be triggered, freezing the price at the low point.
- The bid-ask spread will widen permanently to prevent further shocks.
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