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Convergence of trading strategies in continuous double auction markets with boundedly-rational networked traders

Author

Listed:
  • Junhuan Zhang

    (Beihang University)

  • Peter McBurney

    (King’s College London)

  • Katarzyna Musial

    (Bournemouth University)

Abstract

This paper considers the convergence of trading strategies among artificial traders connected to one another in a social network and trading in a continuous double auction financial marketplace. Convergence is studied by means of an agent-based simulation model called the Social Network Artificial stoCk marKet model. Six different canonical network topologies (including no-network) are used to represent the possible connections between artificial traders. Traders learn from the trading experiences of their connected neighbours by means of reinforcement learning. The results show that the proportions of traders using particular trading strategies are eventually stable. Which strategies dominate in these stable states depends to some extent on the particular network topology of trader connections and the types of traders.

Suggested Citation

  • Junhuan Zhang & Peter McBurney & Katarzyna Musial, 2018. "Convergence of trading strategies in continuous double auction markets with boundedly-rational networked traders," Review of Quantitative Finance and Accounting, Springer, vol. 50(1), pages 301-352, January.
    • Handle: RePEc:kap:rqfnac:v:50:y:2018:i:1:d:10.1007_s11156-017-0631-3
    DOI: 10.1007/s11156-017-0631-3
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    More about this item

    Keywords

    Market microstructure; Agent-based modeling; Social networks; Investment decisions; Automated trading; Continuous double auctions; Reinforcement learning;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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