Robot traders can prevent extreme events in complex stock markets

Suhadolnik, Nicolas and Galimberti, Jaqueson and Da Silva, Sergio (2010): Robot traders can prevent extreme events in complex stock markets.

Abstract

If stock markets are complex, monetary policy and even financial regulation may be useless to prevent bubbles and crashes. Here, we suggest the use of robot traders as an anti-bubble decoy. To make our case, we put forward a new stochastic cellular automata model that generates an emergent stock price dynamics as a result of the interaction between traders. After introducing socially integrated robot traders, the stock price dynamics can be controlled, so as to make the market more Gaussian.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stock markets; Robot traders; Financial regulation; Econophysics
• Subjects: G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation; G - Financial Economics > G0 - General > G01 - Financial Crises

References

[1]B.S. Bernanke, M. Gertler, American Economic Review 91 (2001) 253.

[2]N. Roubini, International Finance 9 (2006) 87.

[3]S. Da Silva, Economics 3 (2009) 1.

[4]D.O. Cajueiro, R.F.S. Andrade, Physical Review E 81 (2010) 015102.

[5]J. Halloy, G. Sempo, G. Caprari, C. Rivault, M. Asadpour, F. Tache, I. Said, V. Durier, S. Canonge, J.M. Ame, C. Detrain, N. Correll, A. Martinoli, F. Mondada, R. Siegwart, J.L. Deneubourg, Science 318 (2007) 1155.

[6]T. Lux, Economic Journal 105 (1995) 881.

[7]W.X. Zhou, D. Sornette, European Physical Journal B 55 (2007) 175.

[8]D. Furbush, Financial Management 18 (1989) 68.

[9]M. Bartolozzi, A.W. Thomas, Physical Review E 69 (2004) 046112.

[10]I. Foroni, A. Agliari, Computational Economics 32 (2008) 21.

[11]A.J.W. Ward, D.J.T. Sumpter, I.D. Couzin, P.J.B. Hart, J. Krause, Proceedings of the National Academy of Sciences 105 (2008) 6948.

[12]M. Aoki, H. Yoshikawa, Japan and the World Economy 18 (2006) 261.

[13]S. Da Silva, Open Economies Review 12 (2001) 281.

[14]T. Lux, in T. Hens, K. Schenk-Hoppe (Eds.), Handbook of Financial Markets: Dynamics and Evolution, North-Holland, Amsterdam, 2009, p. 161.

[15]V. Plerou, P. Gopikrishnan, X. Gabaix, H.E. Stanley, Physical Review E 66 (2002) 027104.

[16]P. Gopikrishnan, M. Meyer, L.A.N. Amaral, H.E. Stanley, European Journal of Physics B 3 (1998) 139.

[17]X. Gabaix, R. Ibragimov, NBER Working Papers 342 (2007) 1.

[18]R. Mantegna, H.E. Stanley, An Introduction to Econophysics: Correlations and Complexity in Finance, Cambridge University Press, Cambridge, 2000.