Assessing the impact of algorithmic trading on markets: a simulation approach

  • Innovative automated execution strategies like Algorithmic Trading gain significant market share on electronic market venues worldwide, although their impact on market outcome has not been investigated in depth yet. In order to assess the impact of such concepts, e.g. effects on the price formation or the volatility of prices, a simulation environment is presented that provides stylized implementations of algorithmic trading behavior and allows for modeling latency. As simulations allow for reproducing exactly the same basic situation, an assessment of the impact of algorithmic trading models can be conducted by comparing different simulation runs including and excluding a trader constituting an algorithmic trading model in its trading behavior. By this means the impact of Algorithmic Trading on different characteristics of market outcome can be assessed. The results indicate that large volumes to execute by the algorithmic trader have an increasing impact on market prices. On the other hand, lower latency appears to lower market volatility.

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Metadaten
Author:Markus Gsell
URN:urn:nbn:de:hebis:30-62284
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2008,49
Series (Serial Number):CFS working paper series (2008, 49)
Document Type:Working Paper
Language:English
Year of Completion:2008
Year of first Publication:2008
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2009/01/29
Tag:Algorithmic Trading; Double Auction; Simulation
GND Keyword:Electronic Commerce
HeBIS-PPN:210302909
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht