← Search

Review of Finance Vol. 28 No. 4 2024

Humans in charge of trading robots: the first experiment

Elena Asparouhova1; Peter Bossaerts2; Xiaoqin Cai3; Kristian Rotaru4; Nitin Yadav5; Wenhao Yang6

1 David Eccles School of Business, University of Utah , Salt Lake City, UT, · 2 Faculy of Economics, University of Cambridge , Cambridge, · 3 Gies College of Business, University of Illinois Urbana-Champaign , Champaign, IL, · 4 Monash Business School and Monash School of Psychological Sciences, Monash University , Melbourne, · 5 Centre for Brain, Mind and Markets, Faculty of Business and Economics, University of Melbourne , Melbourne, · 6 Belk College of Business, University of North Carolina Charlotte , Charlotte, NC,

open access

Abstract

We present results from an experiment where participants have access to automated trading algorithms, which they may deploy at will while still trading manually. Treatments differ in whether robots must not be halted, deployment is compulsory, or robots can be halted and replaced at will. We hypothesize that robot trading would reduce mispricing, and that the effect would be more pronounced as commitment degree increases. Yet, compared to manual trading only, we observe equally large and frequent mispricing and, in early trading, significantly higher bid–ask spreads and more frequent flash crashes/price surges. Participants earn more, provided they combine robot and manual trading. Compared to evidence from archival data, we find significantly higher use of liquidity-taking robots. We attribute this to the inability, in the field, to identify the presence of liquidity takers when they happen not to trade.

DOI
10.1093/rof/rfae007
Volume
28
Issue
4
Pages
1215-1244
Language
en
Sources
bibtex:phds-export.bib openalex crossref

Cite