Effects of price signal choices on market stability

Abstract

Using simulation and analysis we show that agent-based auction-cleared automated markets can be stabilized using only completely myopic agents (without value traders), if these naïve agents are provided with a price signal that reflects order book information. This demonstrates that information in the order book is extremely valuable, that prediction can be replaced by better instantaneous information about others' bids, and suggests new, more stable algorithms for market-based control.

Modelling a Supply Chain as a Network of Markets

“…However, a later paper written by Steiglitz and two other coworkers [5] shows that these results are not as good as first thought, because price bubbles may still occur. Moreover, speculation is often seen as a destabilizing factors of markets, which made Kaldor [3, p. 34] write that speculation likely exerts neither a price-stabilising influence, nor the opposite, or rather that it is both simulatenously.…”

“…Despite the drawback pointed out in [5], the results of [9] remain very convincing, which is the reason why we would like to transfer them to supply chains. Besides that, we do not want to address questions as general as Kaldor, that is, our goal is not to study when speculation stabilises a market.…”

“…This is the maximum price a buyer may bid (thus, pay) or the minimum price a seller may bid (thus, be paid). As we shall see, the valuation function of our agents is the same as in [5,9,10], rather than constant randomly-generated values as in JASA. * A bidding strategy defines how an agent places a bid (when its type allows it to do so) so that either a buyer tries to pay less than its valuation of the good, or a seller tries to get more money than its valuation.…”

“…While this area focusses on systems with a flat structure, we wonder whether its tools may be useful to structured systems, such as supply chains. Such an application of ACE results to supply chains may be very fruitful because ACE provides formal models of agent systems with their emerging properties [5,9,10], and among these properties, system stability and efficiency are of great interest to supply chains. In particular, we hope that applying some ACE results will allow controlling a supply chain, in order, for example, to reduce a phenomenon called the bullwhip effect.…”

Rate of Return Parity with Robot Asset Traders

“…Cason and Friedman (1997) focus on the formation of prices in call markets using robot traders. Mizuta, Steiglitz and Lirov (1999) consider the impact of price signal choice on market stability with robot traders. Youssefmir et al (1998) consider the roll of trend chasing traders in a simulated asset market.…”