Investigation of Frequent Batch Auctions using Agent Based ModelTakanobu Mizuta
Recently, the speed of order matching systems on financial exchanges increased due to competition between markets and due to large investor demands. There is an opinion that this increase is good for liquidity by increasing providing liquidity of market maker strategies (MM), on the other hand, there is also the opposite opinion that this speed causes socially wasteful arms race for speed and these costs are passed to other investors as execution costs.
A frequent batch auction (FBA) which reduces the value of speed advantages proposed, however, is also criticized that MM providing liquidity are exposed to more risks, and then they can continue to provide liquidity, then many MM retire, and finally liquidity will be reduced.
In this study we implemented a price mechanism that is changeable between a comparable continuance double auction (CDA) and FBA continuously, and analyzing profits/losses and risks of MM, we investigated whether MM can continue to provide liquidity even on FBA by using an artificial market model.
Our simulation results showed that on FBA execution rates of MM becomes smaller and this causes to reduce liquidity supply by MM. They also suggested that on FBA MM cannot avoid both an overnight risk and a price variation risk intraday, furthermore, it is very difficult that MM is rewarded for risks and continues to provide liquidity. Only on CDA MM is rewarded for risks and continue to provide liquidity.
This suggestion implies that MM that can provide liquidity on CDA cannot continue to provide liquidity on FBA and then many MM retire, finally liquidity will be reduced.
Investigation of Frequent Batch Auctions using Agent Based ModelTakanobu Mizuta
Recently, the speed of order matching systems on financial exchanges increased due to competition between markets and due to large investor demands. There is an opinion that this increase is good for liquidity by increasing providing liquidity of market maker strategies (MM), on the other hand, there is also the opposite opinion that this speed causes socially wasteful arms race for speed and these costs are passed to other investors as execution costs.
A frequent batch auction (FBA) which reduces the value of speed advantages proposed, however, is also criticized that MM providing liquidity are exposed to more risks, and then they can continue to provide liquidity, then many MM retire, and finally liquidity will be reduced.
In this study we implemented a price mechanism that is changeable between a comparable continuance double auction (CDA) and FBA continuously, and analyzing profits/losses and risks of MM, we investigated whether MM can continue to provide liquidity even on FBA by using an artificial market model.
Our simulation results showed that on FBA execution rates of MM becomes smaller and this causes to reduce liquidity supply by MM. They also suggested that on FBA MM cannot avoid both an overnight risk and a price variation risk intraday, furthermore, it is very difficult that MM is rewarded for risks and continues to provide liquidity. Only on CDA MM is rewarded for risks and continue to provide liquidity.
This suggestion implies that MM that can provide liquidity on CDA cannot continue to provide liquidity on FBA and then many MM retire, finally liquidity will be reduced.
Chapter 13 Artificial Intelligence (AI) for Financial Markets: A Good AI for ...Takanobu Mizuta
Chapter 13
Artificial Intelligence (AI) for Financial Markets: A Good AI for Designing Better Financial Markets and a Bad AI for Manipulating Markets
のご紹介
書籍 Digital designs for money, markets, and social designs に収録
スパークス・アセット・マネジメント株式会社
運用調査本部 ファンドマネージャー 兼 上席研究員
水田孝信
本発表資料はスパークス・アセット・マネジメント株式会社の公式見解を表すものではありません． すべては個人的見解であります．
ワークショップ: https://sites.google.com/view/ddmmsd2022/
書籍: https://doi.org/10.1007/978-981-19-0937-5
4-5 May 2022 IEEE Computational Intelligence for Financial Engineering and Economics
Instability of financial markets by optimizing investment strategies investigated by an agent-based model
Takanobu Mizuta SPARX Asset Management Co. Ltd.
Isao Yagi Kogakuin University
Kosei Takashima Nagaoka University
Note that the opinions contained herein are solely those of the authors and do not necessarily reflect those of SPARX Asset Management Co., Ltd.
In this study, we built an artificial market model by adding technical analysis strategy agents (TAs), which search one optimized parameter in a whole simulation run, to the prior model of [mizuta 2016]. The TAs are a momentum TA (TA-m) and reversal TA (TA-r), and we investigated whether investors' inability to accurately estimate market impacts in their optimizations leads to optimization instability.
When both the TA-m and TA-r exist, the parameters of investment strategies were changing irregularly and unexpectedly. This means that even if all other traders are fixed, only one investor optimizing his/her strategy using backtesting leads to the time evolution of market prices becoming unstable. Financial markets are essentially unstable, and naturally, investment strategies are not able to be fixed. The reason is that even when one investor selects a rational strategy at that time, it changes the time evolution of prices, it becomes no longer rational, another strategy becomes rational, and the process repeats.
Optimization instability is one level higher than ``non-equilibrium of market prices.'' Therefore, the time evolution of market prices produced by investment strategies having such unstable parameters is highly unlikely to be predicted and have stable laws written by equations. This nature makes us suspect that financial markets include the principle of natural uniformity and indicates the difficulty of building an equation model explaining the time evolution of prices.
L'intelligence artificielle utilisée sur les marchés financiersTakanobu Mizuta
L'intelligence artificielle utilisée sur les marchés financiers
This article was just translated by DeepL from the Japanese article,
https://www.sparx.co.jp/report/special/3202.html
So, sorry for poor French.
Artificial Intelligence Used in Financial MarketsTakanobu Mizuta
Artificial Intelligence Used in Financial Markets
This article was just translated by DeepL from the Japanese article,
https://www.sparx.co.jp/report/special/3202.html
So, sorry for poor English.
What is a Hight-Speed Trade? Why does a Stock Exchange Speed-Up?Takanobu Mizuta
What is a Hight-Speed Trade? Why does a Stock Exchange Speed-Up?
2021 IEEE 71st Electronic Components and Technology Conference EPS Seminar
Takanobu Mizuta SPARX Asset Management Co., Ltd.
Note that the opinions contained herein are solely those of the authors and do not necessarily reflect those of SPARX Asset Management Co., Ltd.
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金融レジリエンス情報学
第２回（2014/10/9）
スパークス・アセット・マネジメント
水田孝信
http://www.slideshare.net/mizutata/finance01-36822930
mizutata[at]gmail.com
@takanobu_mizuta (twitter)
http://www.geocities.jp/mizuta_ta/jindex.htm
金融の役割と
機関投資家の株式投資実務](https://image.slidesharecdn.com/finance01-140710022143-phpapp02/85/Finance01-1-320.jpg)
