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Arbitrage bots in experimental asset markets

Author

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  • Angerer, Martin
  • Neugebauer, Tibor
  • Shachat, Jason

Abstract

While algorithmic trading robots are a proliferating presence in asset markets, there is no consensus whether their presence improves market quality or benefits individual investors. We examine the impact of robots seeking arbitrage in experimental laboratory markets. We find that the presence of algorithmic arbitrageurs generally enhances market quality. However, the wealth of human traders suffers from the presence of algorithmic traders. These social costs can be mitigated as we find high latency algorithms harm investors less than low latency algorithms; while the improvements in market quality are indistinguishable between algorithm latency levels and whether they provide liquidity or not.

Suggested Citation

  • Angerer, Martin & Neugebauer, Tibor & Shachat, Jason, 2019. "Arbitrage bots in experimental asset markets," MPRA Paper 96224, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:96224
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    File URL: https://mpra.ub.uni-muenchen.de/96224/1/MPRA_paper_96224.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    asset market experiment; arbitrage; algorithmic trading;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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