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A comparison of different trading protocols in an agent-based market

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Author Info
Paolo Pellizzari () (Department of Applied Mathematics, University of Venice)
Arianna Dal Forno (Department of Applied Mathematics, University of Venice)

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Abstract

We compare price dynamics of different market protocols (batch auction, continuous double auction and dealership) in an agent-based artificial exchange. In order to distinguish the effects of market architectures alone, we use a controlled environment where allocative and informational issues are neglected and agents do not optimize or learn. Hence, we rule out the possibility that the behavior of traders drives the price dynamics. Aiming to compare price stability and execution quality in broad sense, we analyze standard deviation, excess kurtosis, tail exponent of returns, volume, perceived gain by traders and bid-ask spread. Overall, a dealership market appears to be the best candidate, generating low volume and volatility, virtually no excess kurtosis and high perceived gain.

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Publisher Info
Paper provided by Department of Applied Mathematics, University of Venice in its series Working Papers with number 140.

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Length: 20 pages
Date of creation: Jul 2006
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Handle: RePEc:vnm:wpaper:140

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Related research
Keywords: Agent-based models artificial markets comparison of market protocols.

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Find related papers by JEL classification:
N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Day, Richard H. & Huang, Weihong, 1990. "Bulls, bears and market sheep," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 299-329, December. [Downloadable!] (restricted)
    Other versions:
  2. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August. [Downloadable!] (restricted)
  3. Bottazzi, Giulio & Dosi, Giovanni & Rebesco, Igor, 2005. "Institutional architectures and behavioral ecologies in the dynamics of financial markets," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 197-228, February. [Downloadable!] (restricted)
  4. Lux, T. & M. Marchesi, . "Scaling and Criticality in a Stochastic Multi-Agent Model of a Financial Market," Discussion Paper Serie B 438, University of Bonn, Germany, revised Jul 1998.
  5. Amihud, Yakov & Mendelson, Haim, 1987. " Trading Mechanisms and Stock Returns: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 42(3), pages 533-53, July. [Downloadable!] (restricted)
  6. Marco LiCalzi & Paolo Pellizzari, 2002. "Fundamentalists Clashing over the Book: A Study of Order-Driven Stock Markets," Computational Economics 0207001, EconWPA, revised 04 Mar 2003. [Downloadable!]
  7. Marco LiCalzi & Paolo Pellizzari, 2005. "Simple market protocols for efficient risk sharing," Finance 0504019, EconWPA. [Downloadable!]
    Other versions:
  8. Ben Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings, Federal Reserve Bank of Kansas City, pages 77-128. [Downloadable!]
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Lux, Thomas, 2008. "Stochastic Behavioral Asset Pricing Models and the Stylized Facts," Economics working papers 2008,08, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
  2. Paolo Pelizzari & Frank Westerhoff, 2007. "Some Effects of Transaction Taxes Under Different Microstructures," Research Paper Series 212, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  3. Thomas Lux, 2008. "Stochastic Behavioral Asset Pricing Models and the Stylized Facts," Kiel Working Papers 1426, Kiel Institute for the World Economy. [Downloadable!]
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