Humans in Charge of Trading Robots: The First Experiment

37 Pages Posted: 28 Apr 2020

See all articles by Elena N. Asparouhova

Elena N. Asparouhova

University of Utah - David Eccles School of Business

Peter Bossaerts

University of Melbourne - Department of Finance

Kristian Rotaru

Department of Accounting, Monash Business School

Tingxuan Wang

University of Melbourne

Nitin Yadav

University of Melbourne - Department of Finance

Wenhao Yang

Chinese University of Hong Kong, Shenzhen

Date Written: January 9, 2020

Abstract

We present results from an experiment where participants have access to a set of robots (automated trading algorithms), which they may deploy, launch, halt and replace at will, while still trading manually. We hypothesize that mispricing would be reduced. Yet, we observe equally large and frequent mispricing and, in early trading, significantly higher effective bid-ask spreads, and flash crashes/price surges. Nevertheless, participants who engage in both robot and manual trading perform better. Inspection of the types of robots deployed reveals a potentially disturbing source of bias in traditional field studies of algorithmic trading.

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

JEL Classification: G12, G41, C92

Suggested Citation

Asparouhova, Elena N. and Bossaerts, Peter L. and Rotaru, Kristian and Wang, Tingxuan and Yadav, Nitin and Yang, Wenhao, Humans in Charge of Trading Robots: The First Experiment (January 9, 2020). Available at SSRN: https://ssrn.com/abstract=3569435 or http://dx.doi.org/10.2139/ssrn.3569435

Elena N. Asparouhova

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Peter L. Bossaerts (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Department of Finance
Carlton, Victoria 3010
Australia

HOME PAGE: http://bmmlab.org

Kristian Rotaru

Department of Accounting, Monash Business School ( email )

900 Dandenong Rd
Caulfield East, Victoria 3145
Australia
+613-990-34567 (Phone)

Tingxuan Wang

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Nitin Yadav

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Wenhao Yang

Chinese University of Hong Kong, Shenzhen ( email )

2001 Longxiang Road, Longgang District
Shenzhen, 518172
China

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