Humans in Charge of Trading Robots: The First Experiment

50 Pages Posted: 28 Apr 2020 Last revised: 26 Feb 2024

See all articles by Elena N. Asparouhova

Elena N. Asparouhova

University of Utah - David Eccles School of Business

Peter Bossaerts

University of Cambridge

Xiaoqin Cai

University of Illinois Urbana-Champaign

Kristian Rotaru

Department of Accounting, Monash Business School

Nitin Yadav

University of Melbourne - Department of Finance

Wenhao Yang

University of North Carolina (UNC) at Charlotte - Finance

Date Written: February 11, 2024

Abstract

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

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

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 Cambridge ( email )

Faculty of Economics
Cambridge, CB3 9DD
United Kingdom

Xiaoqin Cai

University of Illinois Urbana-Champaign ( email )

Kristian Rotaru

Department of Accounting, Monash Business School ( email )

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

Nitin Yadav

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Wenhao Yang

University of North Carolina (UNC) at Charlotte - Finance ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

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