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High frequency trading strategies, market fragility and price spikes: an agent based model perspective

McGroarty, Frank; Booth, Ash; Gerding, Enrico and Chinthalapati, V. L. Raju. 2019. High frequency trading strategies, market fragility and price spikes: an agent based model perspective. Annals of Operation Research, 282(1-2), pp. 217-244. ISSN 0254-5330 [Article]

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Abstract or Description

Given recent requirements for ensuring the robustness of algorithmic trading strategies laid out in the Markets in Financial Instruments Directive II, this paper proposes a novel agent-based simulation for exploring algorithmic trading strategies. Five different types of agents are present in the market. The statistical properties of the simulated market are compared with equity market depth data from the Chi-X exchange and found to be significantly similar. The model is able to reproduce a number of stylised market properties including: clustered volatility, autocorrelation of returns, long memory in order flow, concave price impact and the presence of extreme price events. The results are found to be insensitive to reasonable parameter variations.

Item Type:

Article

Identification Number (DOI):

https://doi.org/10.1007/s10479-018-3019-4

Additional Information:

This work was supported by an EPSRC Doctoral Training Centre Grant (EP/G03690X/1).

Keywords:

Agent-based model. MIFiD II, Limit order book, Stylised facts, Algorithmic trading

Departments, Centres and Research Units:

Computing

Dates:

DateEvent
November 2019Published
25 August 2018Published Online
14 August 2018Accepted

Item ID:

27283

Date Deposited:

25 Oct 2019 12:39

Last Modified:

26 Oct 2019 09:50

URI:

http://research.gold.ac.uk/id/eprint/27283

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