A simulated electronic market with speculative behaviour and bubble formation

ArXiv ID: 2311.12247 “View on arXiv”

Authors: Unknown

Abstract

This paper presents an agent based model of an electronic market with two types of trading agents. One type follows a mean reverting strategy and the other, the speculative trader, tracks the maximum realised return over recent trades. The speculators have a distribution of returns concentrated on negative returns, with a small fraction making profits. The market experiences an increased volatility and prices that greatly depart from the fundamental value of the asset. Our research provides synthetic datasets of the order book to study its dynamics under different levels of speculation

Keywords: Agent-based model, Mean reverting strategy, Speculative trading, Order book dynamics, Market volatility, Equities (Electronic Market)

Complexity vs Empirical Score

• Math Complexity: 4.5/10
• Empirical Rigor: 6.0/10
• Quadrant: Street Traders
• Why: The paper relies on established agent-based modeling and stochastic processes (e.g., OU, Poisson, exponential distributions) rather than novel advanced mathematics, placing it in the lower-mid range for math complexity. It is highly implementation-heavy, providing specific code algorithms and describing synthetic order book datasets for replication, which indicates strong empirical rigor for a simulation study.

  flowchart TD
    A["Research Goal"] --> B["Define Agents & Strategies"]
    B --> C["Set Market Rules & Parameters"]
    C --> D["Run Simulations"]
    D --> E["Generate Synthetic Order Book Data"]
    E --> F["Analyze Price, Vol & Bubble Formation"]
    F --> G["Key Outcomes"]
    
    style A fill:#f9f,stroke:#333,stroke-width:2px
    style G fill:#9f9,stroke:#333,stroke-width:2px