11,844 research outputs found

    Agent-based Modeling And Market Microstructure

    Get PDF
    In most modern financial markets, traders express their preferences for assets by making orders. These orders are either executed if a counterparty is willing to match them or collected in a priority queue, called a limit order book. Such markets are said to adopt an order-driven trading mechanism. A key question in this domain is to model and analyze the strategic behavior of market participants, in response to different definitions of the trading mechanism (e.g., the priority queue changed from the continuous double auctions to the frequent call market). The objective is to design financial markets where pernicious behavior is minimized.The complex dynamics of market activities are typically studied via agent-based modeling (ABM) methods, enriched by Empirical Game-Theoretic Analysis (EGTA) to compute equilibria amongst market players and highlight the market behavior (also known as market microstructure) at equilibrium. This thesis contributes to this research area by evaluating the robustness of this approach and providing results to compare existing trading mechanisms and propose more advanced designs.In Chapter 4, we investigate the equilibrium strategy profiles, including their induced market performance, and their robustness to different simulation parameters. For two mainstream trading mechanisms, continuous double auctions (CDAs) and frequent call markets (FCMs), we find that EGTA is needed for solving the game as pure strategies are not a good approximation of the equilibrium. Moreover, EGTA gives generally sound and robust solutions regarding different market and model setups, with the notable exception of agents’ risk attitudes. We also consider heterogeneous EGTA, a more realistic generalization of EGTA whereby traders can modify their strategies during the simulation, and show that fixed strategies lead to sufficiently good analyses, especially taking the computation cost into consideration.After verifying the reliability of the ABM and EGTA methods, we follow this research methodology to study the impact of two widely adopted and potentially malicious trading strategies: spoofing and submission of iceberg orders. In Chapter 5, we study the effects of spoofing attacks on CDA and FCM markets. We let one spoofer (agent playing the spoofing strategy) play with other strategic agents and demonstrate that while spoofing may be profitable in both market models, it has less impact on FCMs than on CDAs. We also explore several FCM mechanism designs to help curb this type of market manipulation even further. In Chapter 6, we study the impact of iceberg orders on the price and order flow dynamics in financial markets. We find that the volume of submitted orders significantly affects the strategy choice of the other agents and the market performance. In general, when agents observe a large volume order, they tend to speculate instead of providing liquidity. In terms of market performance, both efficiency and liquidity will be harmed. We show that while playing the iceberg-order strategy can alleviate the problem caused by the high-volume orders, submitting a large enough order and attracting speculators is better than taking the risk of having fewer trades executed with iceberg orders.We conclude from Chapters 5 and 6 that FCMs have some exciting features when compared with CDAs and focus on the design of trading mechanisms in Chapter 7. We verify that CDAs constitute fertile soil for predatory behavior and toxic order flows and that FCMs address the latency arbitrage opportunities built in those markets. This chapter studies the extent to which adaptive rules to define the length of the clearing intervals — that might move in sync with the market fundamentals — affect the performance of frequent call markets. We show that matching orders in accordance with these rules can increase efficiency and selfish traders’ surplus in a variety of market conditions. In so doing, our work paves the way for a deeper understanding of the flexibility granted by adaptive call markets

    Shuttle diplomacy

    Get PDF
    In practice mediation operates through shuttle diplomacy: the mediator goes back and forth between parties, meeting them in private. We model shuttle diplomacy as a dynamic procedure. The mediator helps each party to gradually discover (privately) her value from settlement and re-assess her bargaining position, while also proposing the terms of the deal. We show that shuttle diplomacy always allows parties to achieve an ex-post efficient final settlement. In contrast, this is not possible with a static mediation procedure. In addition, if parties have symmetric prior value distributions, shuttle diplomacy guarantees a fair split of the social value from settlement

    Crowdfunding: A novel source of finance? Lessons for small firms from a synthesis of the literature

    Get PDF
    Crowdfunding is an emerging phenomenon whereby agents make an open call for funding to large numbers of potential contributors (‘the crowd’), usually via online intermediaries known as platforms. While the size and variety of global crowdfunding practices continue to grow rapidly, academic research is only now beginning to form a coherent body of knowledge relating to this potentially disruptive financial phenomenon. This aim of this study is to bring together the research literature on crowdfunding from a wide variety of different disciplines and subject areas into a collective whole with the specific aim of providing advice and guidance to small firms seeking to raise entrepreneurial finance. From summarising the current state of knowledge on crowdfunding and providing advice to entrepreneurs, our study contributes to the literature by stimulating various conventional thinking and beliefs in the field

    Who cares when Value (Mis)reporting May Be Found Out? An Acquiring-a-Company Experiment with Value Messages and Information Leaks

    Get PDF
    We modify the Acquiring-a-Company game to study how information leaks affect lying and market outcomes in an ultimatum bargaining setting with asymmetric information. Privately informed sellers send messages about the alleged value of their company to potential buyers. Via random leaks buyers, however, can learn the true value before proposing a price which the seller finally accepts or not. Only 14.5% of the messages are truthful, whereas two-thirds of all sellers exaggerate the company’s value to persuade buyers to offer more, especially when the true value is small. Although a higher leak probability does not reduce the frequency of misreporting, it weakens overreporting and strengthens underreporting. Buyers who found out value misreporting anchor their price proposals on the true value but do not explicitly discriminate against liars. Sellers are mainly opportunistic and make their acceptances dependent on the resulting positive payoff. Even if ethical concerns do not seem to matter much, probabilistic leaks are welfare enhancing

    Essays in Behavioral Economics and Game Theory

    Get PDF
    This thesis consists of three papers. Chapter 1 conducts experimental research on individual bounded rationality in games, Chapter 2 introduces a novel equilibrium solution concept in behavioral game theory, and Chapter 3 investigates confirmation bias within the framework of game theory. In Chapter 1 (joint with Wei James Chen and Po-Hsuan Lin), we investigate individual strategic reasoning depths by matching human subjects with fully rational computer players in a lab, allowing for the isolation of limited reasoning ability from beliefs about opponent players and social preferences. Our findings reveal that when matched with robots, subjects demonstrate higher stability in their strategic thinking depths across games, in contrast to when matched with humans. In Chapter 2 (joint with Po-Hsuan Lin and Thomas R. Palfrey), we investigate how players’ misunderstanding about the relationship between opponents’ private information and strategies influence their equilibrium behavior in dynamic environments. This theoretical study introduces a framework that extends the analysis of cursed equilibrium from the strategic form to multi-stage games and applies it to various applications in economics and political science. In Chapter 3, I employ a game-theoretic framework to model how decision makers strategically interpret signals, particularly when they face a utility loss from holding beliefs that differ from their partners. The study reveals that the emergence of confirmation bias is positively associated with the strength of prior beliefs about a state, while the impact of signal accuracy remains ambiguous.</p

    Boundary Spanner Corruption in Business Relationships

    Get PDF
    Boundary spanner corruption—voluntary collaborative behaviour between individuals representing different organisations that violates their organisations’ norms—is a serious problem in business relationships. Drawing on insights from the literatures on general corruption perspectives, the dark side of business relationships and deviance in sales and service organisations, this dissertation identifies boundary spanner corruption as a potential dark side complication inherent in close business relationships It builds research questions from these literature streams and proposes a research structure based upon commonly used methods in corruption research to address this new concept. In the first study, using an exploratory survey of boundary spanner practitioners, the dissertation finds that the nature of boundary spanner corruption is broad and encompasses severe and non-severe types. The survey also finds that these deviance types are prevalent in a widespread of geographies and industries. This prevalence is particularly noticeable for less-severe corruption types, which may be an under-researched phenomenon in general corruption research. The consequences of boundary spanner corruption can be serious for both individuals and organisations. Indeed, even less-severe types can generate long-term negative consequences. A second interview-based study found that multi-level trust factors could also motivate the emergence of boundary spanner corruption. This was integrated into a theoretical model that illustrates how trust at the interpersonal, intraorganisational, and interorganisational levels enables corrupt behaviours by allowing deviance-inducing factors stemming from the task environment or from the individual boundary spanner to manifest in boundary spanner corruption. Interpersonal trust between representatives of different organisations, interorganisational trust between these organisations, and intraorganisational agency trust of management in their representatives foster the development of a boundary-spanning social cocoon—a mechanism that can inculcate deviant norms leading to corrupt behaviour. This conceptualisation and model of boundary spanner corruption highlights intriguing directions for future research to support practitioners engaged in a difficult problem in business relationships

    Relaxing the symmetry assumption in participation games: A specification test for cluster heterogeneity

    Get PDF
    Published online: 05 April 2023. OnlinePublWe propose a novel approach to check whether individual behaviour in binary-choice participation games is consistent with the restrictions imposed by symmetric models. This approach allows in particular an assessment of how much cluster-heterogeneity a symmetric model can tolerate to remain consistent with its behavioural restrictions. We assess our approach with data from market-entry experiments which we analyse through the lens of ‘Exploration versus Exploration’ (EvE, which is equivalent to Logit-QRE) or of Impulse Balance Equilibrium (IBE). We find that when the symmetry assumption is imposed, both models are typically rejected when assuming pooled data and IBE yields more data-consistent estimates than EvE, i.e., IBE’s estimates of session and pooled data are more consistent than those of EvE. When relaxing symmetry, EvE (IBE) is rejected for 17% (42%) of the time. Although both models support cluster-heterogeneity, IBE is much less likely to yield over-parametrised specifications and insignificant estimates so it outperforms EvE in accommodating a model-consistent cluster-heterogeneity. The use of regularisation procedures in the estimations partially addresses EvE’s shortcomings but leaves our overall conclusions unchanged.Alan Kirman, François Laisney, Paul Pezanis, Christo

    Financial and Economic Review 22.

    Get PDF

    The food quality schemes of the European Union and their implications on the Hungarian market [vĂ©dĂ©s elƑtt]

    Get PDF
    It is becoming increasingly important for consumers to know exactly what kind of foods they consume, while it is increasingly vital for food producers to excel from the competition in the global market. This requires a great deal of information exchange between these two market players. The most common way to do this is through various food labels. I have focused on one group of such labels in my research, trying to find out as much useful information as possible about the geographical indications (GI) of the European Union. I was looking for answers to the following questions: 1, How well-known are the labels of EU GI products among Hungarian consumers, and how well do they know their meaning? The awareness of the GI labels in Hungary is definitely low (in the best case, it was 31%), even if this number is not much lower than the average in the EU. This number is probably too low for these labels to be effective marketing tools for producers. It also includes the fact that only 50% of those who said they know the label know at least approximately the meaning of the label. Can you build a marketing campaign currently on these markings? Probably not an effective one, but what gives hope is that awareness of the labels compared to previous surveys is constantly increasing. The EU focuses on GI products, so this growth is expected to be continued. So far, the EU has completed more than 30 international agreements, which allow the recognition of many EU GI outside the boundaries of the EU and the recognition of non-EU GI inside the territories of the EU. GIs represent an increasingly important aspect of trade negotiations between the EU and other countries. The Commission separates around €50 million year after year to support quality products in the EU and all over the world. Taking this into account, these labels can play an important role in the food markets in the near future. 2, What is the level of trust in the labelling of EU GI products, and what influences this trust? About half of the respondents said that they trust the logo. When we analysed the possible variables, which can influence trust, we concluded that knowledge of logos is important because if someone knows the label, they have more than three times the chance to trust them, while in terms of meaning, the chance is almost double. Based on the research, we can say that gender, education, and age do not affect trust in EU GI labels. In the case of place of residence, it can be said that someone who lives in a more urban environment trusts less in GI labels. All in all, consumer education is most needed to build confidence in GI, as those who recognize the labels on food packaging or are aware of what those labels mean will treat these products with much greater confidence. 3, How often do consumers buy EU GI certified products, and what affects it? More than 35% of those surveyed are regular customers of GI-labelled products. The frequency of purchases is mostly determined by consumer confidence (the result is not significant for the PDO). Women become much fewer regular customers (not significant for the PGI). In terms of age, the older a consumer is, the less likely it is to become a regular buyer (not significant for PDO), while residents of rural, smaller settlements are more loyal buyers of PGI products. The highest level of education has no detectable effect here either. So, in this topic also, we have to repeat that the most important thing is to inform consumers as widely as possible. 4, In the Hungarian market, what is the market size of products with geographical indication, examining the example of discount stores? The number of GI products available in Hungarian discount stores is limited, with an average of 11 products per store. The supply is fairly constant; however, even though there are only a limited number of GI products on the shelves, they are at least always available to consumers and are part of the chains ’core product portfolio. However, the number of GI products usually increases during the thematic days (e.g., Greek days). We can see that the supply is very limited for GI products, so buyers rarely meet face to face with the label, they are even less likely to find out about the meaning of the markings on their own. Targeted information on GI labels is needed for consumers, and for that they start to appreciate them. 5, In Hungarian discount stores, what is the price premium of products with a geographical indication compared to their direct substitutes, estimated from below? The average price premium for GI products is 29% in the Aldi, 46% in the Penny Market and the highest was in Lidl with 54%. Overall, the average premium was around 43%. It is also important to mention that in addition to supply, prices did not really change during the observations. Although the price of some products may also change during promotional periods, consumers can plan to purchase GI products in advance. On the other hand, discount stores provide a continuous market for producers as well. 6, Are geographical indications positively related to comparative advantages in the beer market? Our results show that the number of GI-registered beers is positively related to comparative advantages. Countries with traditional beer products closely linked to their place of origin are usually with a higher level of comparative advantages as the number of GI beers positively determines SRCA indices. From this, it can be concluded that it is not pointless to promote the increase in the number of GI products and devote resources to GI labels

    Fuzzy Natural Logic in IFSA-EUSFLAT 2021

    Get PDF
    The present book contains five papers accepted and published in the Special Issue, “Fuzzy Natural Logic in IFSA-EUSFLAT 2021”, of the journal Mathematics (MDPI). These papers are extended versions of the contributions presented in the conference “The 19th World Congress of the International Fuzzy Systems Association and the 12th Conference of the European Society for Fuzzy Logic and Technology jointly with the AGOP, IJCRS, and FQAS conferences”, which took place in Bratislava (Slovakia) from September 19 to September 24, 2021. Fuzzy Natural Logic (FNL) is a system of mathematical fuzzy logic theories that enables us to model natural language terms and rules while accounting for their inherent vagueness and allows us to reason and argue using the tools developed in them. FNL includes, among others, the theory of evaluative linguistic expressions (e.g., small, very large, etc.), the theory of fuzzy and intermediate quantifiers (e.g., most, few, many, etc.), and the theory of fuzzy/linguistic IF–THEN rules and logical inference. The papers in this Special Issue use the various aspects and concepts of FNL mentioned above and apply them to a wide range of problems both theoretically and practically oriented. This book will be of interest for researchers working in the areas of fuzzy logic, applied linguistics, generalized quantifiers, and their applications
    • 

    corecore