IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2410.14587.html
   My bibliography  Save this paper

Neuro-Symbolic Traders: Assessing the Wisdom of AI Crowds in Markets

Author

Listed:
  • Namid R. Stillman
  • Rory Baggott

Abstract

Deep generative models are becoming increasingly used as tools for financial analysis. However, it is unclear how these models will influence financial markets, especially when they infer financial value in a semi-autonomous way. In this work, we explore the interplay between deep generative models and market dynamics. We develop a form of virtual traders that use deep generative models to make buy/sell decisions, which we term neuro-symbolic traders, and expose them to a virtual market. Under our framework, neuro-symbolic traders are agents that use vision-language models to discover a model of the fundamental value of an asset. Agents develop this model as a stochastic differential equation, calibrated to market data using gradient descent. We test our neuro-symbolic traders on both synthetic data and real financial time series, including an equity stock, commodity, and a foreign exchange pair. We then expose several groups of neuro-symbolic traders to a virtual market environment. This market environment allows for feedback between the traders belief of the underlying value to the observed price dynamics. We find that this leads to price suppression compared to the historical data, highlighting a future risk to market stability. Our work is a first step towards quantifying the effect of deep generative agents on markets dynamics and sets out some of the potential risks and benefits of this approach in the future.

Suggested Citation

  • Namid R. Stillman & Rory Baggott, 2024. "Neuro-Symbolic Traders: Assessing the Wisdom of AI Crowds in Markets," Papers 2410.14587, arXiv.org.
  • Handle: RePEc:arx:papers:2410.14587
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2410.14587
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Majewski, Adam A. & Ciliberti, Stefano & Bouchaud, Jean-Philippe, 2020. "Co-existence of trend and value in financial markets: Estimating an extended Chiarella model," Journal of Economic Dynamics and Control, Elsevier, vol. 112(C).
    2. Cipriani Marco & Guarino Antonio, 2008. "Herd Behavior and Contagion in Financial Markets," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-56, October.
    3. Anna Orlik & Laura Veldkamp, 2014. "Understanding Uncertainty Shocks and the Role of Black Swans," NBER Working Papers 20445, National Bureau of Economic Research, Inc.
    4. Farmer, J. Doyne & Axtell, Robert L., 2022. "Agent-Based Modeling in Economics and Finance: Past, Present, and Future," INET Oxford Working Papers 2022-10, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Namid R. Stillman & Rory Baggott & Justin Lyon & Jianfei Zhang & Dingqiu Zhu & Tao Chen & Perukrishnen Vytelingum, 2023. "Deep Calibration of Market Simulations using Neural Density Estimators and Embedding Networks," Papers 2311.11913, arXiv.org, revised Nov 2023.
    2. Federico Guglielmo Morelli & Michael Benzaquen & Marco Tarzia & Jean-Philippe Bouchaud, 2020. "Confidence collapse in a multihousehold, self-reflexive DSGE model," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 117(17), pages 9244-9249, April.
    3. Marco Cipriani & Antonio Guarino, 2009. "Herd Behavior in Financial Markets: An Experiment with Financial Market Professionals," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 206-233, March.
    4. Mathias Drehmann & Jörg Oechssler & Andreas Roider, 2005. "Herding and Contrarian Behavior in Financial Markets: An Internet Experiment," American Economic Review, American Economic Association, vol. 95(5), pages 1403-1426, December.
    5. Nuzzo, Simone & Morone, Andrea, 2017. "Asset markets in the lab: A literature review," Journal of Behavioral and Experimental Finance, Elsevier, vol. 13(C), pages 42-50.
    6. Eyster, Erik & Galeotti, Andrea & Kartik, Navin & Rabin, Matthew, 2014. "Congested observational learning," Games and Economic Behavior, Elsevier, vol. 87(C), pages 519-538.
    7. Chen, Bin-xia & Sun, Yan-lin, 2022. "The impact of VIX on China’s financial market: A new perspective based on high-dimensional and time-varying methods," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    8. Tobias Adrian & Nina Boyarchenko & Domenico Giannone, 2019. "Vulnerable Growth," American Economic Review, American Economic Association, vol. 109(4), pages 1263-1289, April.
    9. Jonathan E. Alevy & Michael S. Haigh & John List, 2006. "Information Cascades: Evidence from An Experiment with Financial Market Professionals," NBER Working Papers 12767, National Bureau of Economic Research, Inc.
    10. Straub, Ludwig & Ulbricht, Robert, 2019. "Endogenous second moments: A unified approach to fluctuations in risk, dispersion, and uncertainty," Journal of Economic Theory, Elsevier, vol. 183(C), pages 625-660.
    11. Marfè, Roberto & Pénasse, Julien, 2024. "Measuring macroeconomic tail risk," Journal of Financial Economics, Elsevier, vol. 156(C).
    12. Giovanni Caggiano & Efrem Castelnuovo & Gabriela Nodari, 2014. "Uncertainty and Monetary Policy in Good and Bad Times," "Marco Fanno" Working Papers 0188, Dipartimento di Scienze Economiche "Marco Fanno".
    13. Denis Koshelev & Alexey Ponomarenko & Sergei Seleznev, 2023. "Amortized neural networks for agent-based model forecasting," Papers 2308.05753, arXiv.org.
    14. Caldara, Dario & Fuentes-Albero, Cristina & Gilchrist, Simon & Zakrajšek, Egon, 2016. "The macroeconomic impact of financial and uncertainty shocks," European Economic Review, Elsevier, vol. 88(C), pages 185-207.
    15. Dow, Sheila, 2016. "Uncertainty: A diagrammatic treatment," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 10, pages 1-25.
    16. Cipriani, Marco & Guarino, Antonio & Uthemann, Andreas, 2022. "Financial transaction taxes and the informational efficiency of financial markets: A structural estimation," Journal of Financial Economics, Elsevier, vol. 146(3), pages 1044-1072.
    17. Byrne, Joseph P. & Cao, Shuo & Korobilis, Dimitris, 2019. "Decomposing global yield curve co-movement," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 500-513.
    18. Alicia Vidler & Toby Walsh, 2024. "Modelling Opaque Bilateral Market Dynamics in Financial Trading: Insights from a Multi-Agent Simulation Study," Papers 2405.02849, arXiv.org.
    19. LOVO, Stefano & DECAMPS, Jean-Paul, 2002. "Risk aversion and herd behavior in financial markets," HEC Research Papers Series 758, HEC Paris.
    20. Cezar, Rafael & Gigout, Timothée & Tripier, Fabien, 2020. "Cross-border investments and uncertainty: Firm-level evidence," Journal of International Money and Finance, Elsevier, vol. 108(C).

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2410.14587. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.