Impact of False Information from Spoofing Strategies: An ABM Model of Market Dynamics

Hao Hang Li, Steve Y. Yang

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

Abstract

Spoofing has been identified a form of market manipulation, and it is harmful to the stability of the financial market. However, the effect of spoofing activity is hard to analyze due to its complex interactions within the market and lack of data. This paper presents an agent-based simulation model of the continuous double auction market to replicate and analyze the market dynamics under spoofing conditions. The simulated market consists of fundamentalist, chartist, zero intelligence agents, and spoofing agents where several existing market stylized facts are validated. The results show that in the presence of the spoofing agents and their market manipulation activities, the market volatility would increase, and spoofing activities would exacerbate the price variations. The fundamentalist agents would suffer a loss during the spoofing period but would be able to make profit during the price recovery phase. The chartist agents would suffer a loss when the spoofing agent realized its profit and the price recovery process start, at which they falsely believed the price movement trend would continue. The Sharpe ratio analysis also indicates the market manipulation activities of the spoofing agent would give themselves an unfair advantage resulting in a significantly higher Sharpe ratio than the other agents.

Original languageEnglish
Title of host publication2022 IEEE Symposium on Computational Intelligence for Financial Engineering and Economics, CIFEr 2022 - Proceedings
ISBN (Electronic)9781665442343
DOIs
StatePublished - 2022
Event2022 IEEE Symposium on Computational Intelligence for Financial Engineering and Economics, CIFEr 2022 - Virtual, Helsinki, Finland
Duration: 4 May 20225 May 2022

Publication series

Name2022 IEEE Symposium on Computational Intelligence for Financial Engineering and Economics, CIFEr 2022 - Proceedings

Conference

Conference2022 IEEE Symposium on Computational Intelligence for Financial Engineering and Economics, CIFEr 2022
Country/TerritoryFinland
CityVirtual, Helsinki
Period4/05/225/05/22

Keywords

  • Agent-based model
  • LOB
  • chartist
  • fundamentalist
  • spoofing

Fingerprint

Dive into the research topics of 'Impact of False Information from Spoofing Strategies: An ABM Model of Market Dynamics'. Together they form a unique fingerprint.

Cite this