Internet Appendix for ``AI-Powered Trading, Algorithmic Collusion, and Price Efficiency''

51 Pages Posted: 7 May 2024

See all articles by Winston Wei Dou

Winston Wei Dou

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ; National Bureau of Economic Research (NBER)

Yan Ji

Hong Kong University of Science & Technology (HKUST)

Date Written: May 2, 2024

Abstract

This appendix provides supplemental materials for the paper titled ``AI-Powered Trading, Algorithmic Collusion, and Price Efficiency'' (Dou, Goldstein, and Ji, 2024). Section \ref{sec: supplementary simulation} provides supplemental material for the simulation results. Section \ref{sec: proofs} presents additional explanations for the model and sketches proofs for the propositions and lemmas. Section \ref{sec: Mechanism Behind Collusion under High Noise-Trading Risks} provides detailed discussions on the collusion mechanism through homogenized learning biases.

Keywords: Reinforcement learning, AI collusion, Homogenization, Experience-based and self-confirming equilibrium, Asymmetric information, Price informativeness, Market liquidity.

JEL Classification: D43, G10, G14, L13

Suggested Citation

Dou, Winston Wei and Goldstein, Itay and Ji, Yan, Internet Appendix for ``AI-Powered Trading, Algorithmic Collusion, and Price Efficiency'' (May 2, 2024). Available at SSRN: https://ssrn.com/abstract=4815650 or http://dx.doi.org/10.2139/ssrn.4815650

Winston Wei Dou (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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United States

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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HOME PAGE: http://www.nber.org/people/winston_wei_dou?page=1&perPage=50

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-746-0499 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yan Ji

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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