Humans in Charge of Trading Robots: The First Experiment

We present results from an experiment where participants have access to automated trading algorithms, which they may deploy at will while still trading manually. Treatments differ in whether robots must not be halted, deployment is compulsory, or robots can be halted and replaced at will. We hypothesize that robot trading would reduce mispricing, and that the effect would be more pronounced as commitment degree increases. Yet, compared to manual trading only, we observe equally large and frequent mispricing and, in early trading, significantly higher bid-ask spreads and more frequent flash crashes/price surges. Participants earn more provided they combine robot and manual trading. Compared to evidence from archival data, we find significantly higher use of liquidity-taking robots. We attribute this to the inability, in the field, to identify the presence of liquidity takers when they happen not to trade.

Keywords: Algorithmic Trading, Experimental Finance, Bubbles, Crashes, Human Robot Interaction

JEL Classification: G12, G41, C92

Suggested Citation: Suggested Citation

Asparouhova, Elena N. and Bossaerts, Peter L. and Cai, Xiaoqin and Rotaru, Kristian and Yadav, Nitin and Yang, Wenhao, Humans in Charge of Trading Robots: The First Experiment (February 11, 2024). Available at SSRN: https://ssrn.com/abstract=3569435 or http://dx.doi.org/10.2139/ssrn.3569435