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Algorithmic trading in experimental markets with human traders: A literature survey

In: Handbook of Experimental Finance

Author

Listed:
  • Te Bao
  • Elizaveta Nekrasova
  • Tibor Neugebauer
  • Yohanes E. Riyanto

Abstract

This chapter surveys the nascent experimental research on the interaction between human and algorithmic trading in experimental markets. We first discuss studies in which algorithmic traders are in the researcher's hands. Specifically, the researcher assigns computer agents as traders in the market. We then discuss studies in which the researcher leaves in human subjects' hands the decision to employ algorithms for trading. The chapter introduces the types and performances of algorithmic traders that interact with human subjects in the laboratory, including zero-intelligent traders, arbitragers, fundamentalists, adaptive algorithms, and manipulators. We find that whether algorithm traders earn more profit than human traders crucially depends on the asset's fundamental value process and the market environment. The potential impact of interactions with algorithmic traders on the investor's psychology is also discussed.

Suggested Citation

  • Te Bao & Elizaveta Nekrasova & Tibor Neugebauer & Yohanes E. Riyanto, 2022. "Algorithmic trading in experimental markets with human traders: A literature survey," Chapters, in: Sascha Füllbrunn & Ernan Haruvy (ed.), Handbook of Experimental Finance, chapter 23, pages 302-322, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:20035_23
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    Citations

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    Cited by:

    1. Neugebauer, Tibor & Shachat, Jason & Szymczak, Wiebke, 2023. "A test of the Modigliani-Miller theorem, dividend policy and algorithmic arbitrage in experimental asset markets," Journal of Banking & Finance, Elsevier, vol. 154(C).
    2. Angerer, Martin & Neugebauer, Tibor & Shachat, Jason, 2023. "Arbitrage bots in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 206(C), pages 262-278.
    3. Brice Corgnet & Mark DeSantis & Christoph Siemroth, 2023. "Algorithmic Trading, Price Efficiency and Welfare: An Experimental Approach," Working Papers 2313, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    4. Zhuo Wenjun, 2023. "Circulation Expectations, Farmer Trust, and Farmers’ Contract Choice Behavior," Land, MDPI, vol. 12(8), pages 1-15, August.

    More about this item

    Keywords

    Economics and Finance;

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