Machine Learning, Algorithmic Trading, and Manipulation

Trading in financial markets is increasingly dominated by algorithms. They enable trading at speeds and levels of adaptiveness that are impossible for human beings. A key question for the legal system is whether these algorithms will disrupt the efficiency and integrity of markets, and if they will, whether existing regulation is well-suited to deterring misconduct. A key question for finance is to determine what market structures are most robust to manipulation by new algorithmic trading agents.

In our new working paper, we study the potential consequences of advanced algorithms trading in a financial market. Specifically, we analyze experimentally how … Read more