An Investigation of the "Flash Crash" of 2010 using the principles of behavioral finance

Thesis (M.A.) from the year 2013 in the subject Business economics - Investment and Finance, grade: 67, European school of economics, language: English, abstract: In every market there are some trading or buying anomalies that cannot be explained by financial instruments and theories alone. For this reason the field of behavioral finance was developed. As investors are humans, they sometimes act in according to their instinct rather than strict financial rules, principals or inputs. There have been many events in the last century that do not have a clear financial explanation but rather seem more possibly explained by psychological factors. One of the most recent events that has been witness to this financial anomaly is the "Flash Crash of 2010". This research will look into the event as well as examine how behavioral finance theories can be used to create a rational explanation to this seemingly irrational event.