Algorithmic trading, what if it is just an illusion?

Research
Corporate and Market Finance

168 vues

We experimentally investigate whether and how the potential presence of algorithmic trading (AT) in human-only asset markets can influence humans’ price forecasts, trading activities and price dynamics. Two trading strategies commonly employed by high-frequency traders, spoofing (SP) – associated with market manipulation – and market making (MM) – seen as liquidity provision – are considered. These experiments reveal that, first, the mere expectation of SP traders can, at first, impair price convergence towards fundamentals. Second, the expected presence of AT, especially MM traders, induce larger initial price forecasts deviations from fundamentals. Third, despite the absence of AT in our experiments, the information about the presence of AT, employing MM strategy, is sufficient to alter subjects trading behavior over time and the impact of past realized prices on subjects’ order prices.

Liens et ressources

https://doi.org/10.1016/j.socec.2024.102240

Mots clés

Algorithmic trading, Experiment Asset market, Market efficiency, Market volatility

Auteur.e(s)

JACOB-LEAL Sandrine
Associate Professor
FNEGE

Institution(s)

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