Journal article
Humans in charge of trading robots: The first experiment
E Asparouhova, P Bossaerts, X Cai, K Rotaru, N Yadav, W Yang
Review of Finance | Oxford University Press (OUP) | Published : 2024
DOI: 10.1093/rof/rfae007
Open access
Abstract
We present results from an experiment where participants have access to automated trading algorithms, which they may deploy at will while still trading manually. Treatments differ in whether robots must not be halted, deployment is compulsory, or robots can be halted and replaced at will. We hypothesize that robot trading would reduce mispricing, and that the effect would be more pronounced as commitment degree increases. Yet, compared to manual trading only, we observe equally large and frequent mispricing and, in early trading, significantly higher bid-ask spreads and more frequent flash crashes/price surges. Participants earn more, provided they combine robot and manual trading. Compared ..
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Awarded by Leverhulme Trust
Funding Acknowledgements
Asparouhova and Bossaerts acknowledge funding from the US National Science Foundation (SES-1061824). Bossaerts acknowledges funding from the Australian Research Council (DP180102284), his R@MAP Chair at the University of Melbourne, and an International Professorship grant to the University of Cambridge from the Leverhulme Foundation. Rotaru thanks the Monash Business School and the Australian Research Council (ARC LIEF grant LE130100112) for funds associated with the Monash Business Behavioural Laboratory equipment used in this study. The article benefited from discussions during the CAFIN-GRU Conference on Market Design and Regulation in the Presence of High-Frequency Trading (2017, Hong Kong), the 2018 Algorithmic Trading Conference at the University of Luxembourg, the 2019 Behavioral Finance and Capital Markets Conference (Melbourne), and comments and suggestions from the Editor and two anonymous reviewers. Some of the results of the first eight experimental sessions were included as part of the 2017 Honours Thesis of Tingxuan Wang at the University of Melbourne.