{"title":"Algorithmic trading, what if it is just an illusion? Evidence from experimental asset markets","authors":"Sandrine Jacob-Leal , Nobuyuki Hanaki","doi":"10.1016/j.socec.2024.102240","DOIUrl":null,"url":null,"abstract":"<div><p>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.</p></div>","PeriodicalId":51637,"journal":{"name":"Journal of Behavioral and Experimental Economics","volume":null,"pages":null},"PeriodicalIF":1.6000,"publicationDate":"2024-05-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Behavioral and Experimental Economics","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S2214804324000788","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
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.
期刊介绍：
The Journal of Behavioral and Experimental Economics (formerly the Journal of Socio-Economics) welcomes submissions that deal with various economic topics but also involve issues that are related to other social sciences, especially psychology, or use experimental methods of inquiry. Thus, contributions in behavioral economics, experimental economics, economic psychology, and judgment and decision making are especially welcome. The journal is open to different research methodologies, as long as they are relevant to the topic and employed rigorously. Possible methodologies include, for example, experiments, surveys, empirical work, theoretical models, meta-analyses, case studies, and simulation-based analyses. Literature reviews that integrate findings from many studies are also welcome, but they should synthesize the literature in a useful manner and provide substantial contribution beyond what the reader could get by simply reading the abstracts of the cited papers. In empirical work, it is important that the results are not only statistically significant but also economically significant. A high contribution-to-length ratio is expected from published articles and therefore papers should not be unnecessarily long, and short articles are welcome. Articles should be written in a manner that is intelligible to our generalist readership. Book reviews are generally solicited but occasionally unsolicited reviews will also be published. Contact the Book Review Editor for related inquiries.
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