TY - GEN
T1 - Impact of False Information from Spoofing Strategies
T2 - 2022 IEEE Symposium on Computational Intelligence for Financial Engineering and Economics, CIFEr 2022
AU - Li, Hao Hang
AU - Yang, Steve Y.
N1 - Publisher Copyright:
© 2022 IEEE.
PY - 2022
Y1 - 2022
N2 - 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.
AB - 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.
KW - Agent-based model
KW - LOB
KW - chartist
KW - fundamentalist
KW - spoofing
UR - http://www.scopus.com/inward/record.url?scp=85130889180&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85130889180&partnerID=8YFLogxK
U2 - 10.1109/CIFEr52523.2022.9776070
DO - 10.1109/CIFEr52523.2022.9776070
M3 - Conference contribution
AN - SCOPUS:85130889180
T3 - 2022 IEEE Symposium on Computational Intelligence for Financial Engineering and Economics, CIFEr 2022 - Proceedings
BT - 2022 IEEE Symposium on Computational Intelligence for Financial Engineering and Economics, CIFEr 2022 - Proceedings
Y2 - 4 May 2022 through 5 May 2022
ER -