Does Algorithmic Trading Attenuate Asset Price Bubbles: An Experiment
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Date
2023-04-05
Publication Type
Working Paper
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yes
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Abstract
This study investigates the impact of algorithmic trading strategies on asset price mispricing and relative payoffs of human and algorithmic traders using the Smith- Suchanek-Williams (SSW - (Smith et al. (1988))) framework. A 2x2 treatment design varying algorithmic strategy (market-making or sniper) and speed (instantaneous or 5-second speed bump) is implemented. The benchmark treatment involves only human traders. Results show that the market-making algorithm reduces mispricing by 21% compared to the benchmark. The sniper algorithm reduces mispricing significantly less. The 5-second speed bump has no effect on mispricing. The sniper algorithm out- performs human traders significantly, whereas profits of the market-making algorithm are similar to those achieved by human traders.
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published
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Pages / Article No.
4410212
Publisher
Social Science Research Network
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Edition / version
v1
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Software
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Date collected
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Subject
Algorithmic Trading; Market-Maker; Sniper; Speed Bump; Experimental Asset Markets; Asset Price Bubbles
Organisational unit
03987 - Hölscher, Christoph / Hölscher, Christoph