Gu, Anri, Wang, Yongzhao, Mascioli, Chris, Chakraborty, Mithun, Savani, Rahul, Turocy, Theodore L. ORCID: https://orcid.org/0000-0002-2265-844X and Wellman, Michael P. (2024) The Effect of Liquidity on the Spoofability of Financial Markets. In: ICAIF'24: The 5th ACM International Conference on AI in Finance. UNSPECIFIED.
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Abstract
We investigate the relationship between market liquidity and spoof- ing, a manipulative practice involving the submission of deceptive orders aimed at misleading other traders. Utilizing an agent-based market simulator, we model markets with varying levels of liquidity, adjusting the spread and intervals of a market maker’s orders to control liquidity. Within these simulated markets, we evaluate the effectiveness of two novel spoofing strategies against a benchmark approach. Our experiments show that in high-liquidity markets, spoofing is substantially less profitable and less detrimental to other traders compared to their low-liquidity counterparts. Additionally, we identify two distinct spoofing behavior regimes based on liq- uidity, each of which employ drastically different profit-making strategies. Finally, building on our quantitative findings, we iden- tify and expound upon the mechanisms through which liquidity mitigates market manipulation.
Item Type: | Book Section |
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Faculty \ School: | Faculty of Social Sciences > School of Economics |
UEA Research Groups: | Faculty of Social Sciences > Research Groups > Environment, Resources and Conflict Faculty of Social Sciences > Research Groups > Economic Theory Faculty of Social Sciences > Research Groups > Behavioural Economics Faculty of Social Sciences > Research Centres > Centre for Competition Policy Faculty of Social Sciences > Research Centres > Centre for Behavioural and Experimental Social Sciences |
Depositing User: | LivePure Connector |
Date Deposited: | 05 Nov 2024 17:30 |
Last Modified: | 10 Nov 2024 06:30 |
URI: | https://ueaeprints.uea.ac.uk/id/eprint/97526 |
DOI: | 10.1145/3677052.3698634 |
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