Abstract
To understand the impact of high frequency trading (HFT) systems on financial market dynamics, a series of controlled real-time experiments involving humans and automated trading agents were performed. These experiments fall at the interdisciplinary boundary between the more traditional fields of behavioural economics (human-only experiments) and agent based computational economics (agent-only simulations). Experimental results demonstrate that: (a) faster financial trading agents can reduce market efficiency - a worrying result given the race towards zero-latency (ever faster trading) observed in real markets; and (b) faster agents can lead to market fragmentation, such that markets transition from a regime where humans and agents freely interact, to a regime where agents are more likely to trade between themselves - a result that has also been observed in real financial markets.
It is also shown that (c) realism in experimental design can significantly alter market dynamics - suggesting that, if we want to understand complexity in real financial markets, it is finally time to move away from the simple experimental economics models first introduced in the 1960s.
It is also shown that (c) realism in experimental design can significantly alter market dynamics - suggesting that, if we want to understand complexity in real financial markets, it is finally time to move away from the simple experimental economics models first introduced in the 1960s.
Original language | English |
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Title of host publication | Complex Systems Modeling and Simulation in Economics and Finance |
Editors | Shu-Heng Chen, Ying-Fang Kao, Ragupathy Venkatachalam, Ye-Rong Du |
Publisher | Springer International Publishing AG |
Pages | 35-69 |
Number of pages | 34 |
ISBN (Electronic) | 9783319996240 |
ISBN (Print) | 9783319996226 |
DOIs | |
Publication status | Published - 21 Nov 2018 |
Event | Conference on Computing in Economics and Finance - Howard Civil Service International House, Taipei, Taiwan Duration: 20 Jun 2015 → 22 Jun 2015 Conference number: 21 http://www.aiecon.org/conference/cef2015/ |
Publication series
Name | Springer Proceedings in Complexity |
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Publisher | Springer International Publishing |
ISSN (Print) | 2213-8684 |
Conference
Conference | Conference on Computing in Economics and Finance |
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Abbreviated title | CEF2015 |
Country/Territory | Taiwan |
City | Taipei |
Period | 20/06/15 → 22/06/15 |
Internet address |
Keywords
- Agent-based Computational Economics
- Automated Trading
- Continuous Double Auction
- Experimental Economics
- High-Frequency Trading
- Human-Agent Experiments
- Robot Phase Transition
- Trading Agents
Fingerprint
Dive into the research topics of 'Modelling complex financial markets using real-time human-agent trading experiments'. Together they form a unique fingerprint.Profiles
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Professor John P Cartlidge
- School of Engineering Mathematics and Technology - Professor of Financial Technology
Person: Academic
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Professor Dave Cliff
- School of Engineering Mathematics and Technology - Professor of Computer Science/Academic Director for TQC
- Cabot Institute for the Environment
- Intelligent Systems Laboratory
Person: Academic , Member