Tick Size and Market Quality Using an Agent-Based Multiple-Order-Book Model

Abstract

This study investigated the dynamics between tick size and market quality using an agent-based multiple-order-book stock-market model. Given the multiple-order-book setting, we integrated the model with small-, medium-, and large-cap stocks and conducted the analysis from both a tick-size-series and cross-sectional perspective. The simulation results showed that small-cap stocks were of the lowest quality. Furthermore, quality was generally weakened as tick-size value increased, with expanded bid-ask spreads, elevated market volatility, and reduced market efficiency.

The Behavior and Impact of Heterogeneous Investors in China’s Stock Index Futures Market: An Agent‐Based Model on Cross‐Market Trades

“…Based on the method of Chiarella et al [27], we model the mixed heterogeneous beliefs of spot market investors and draw on the practice of Zhao et al [24]. We forecast and modeled spot market investors' wealth for adaptive asset allocation.…”

“…spot benchmark model all have heterogeneous beliefs, demonstrating 60% fundamental beliefs, 30% technical beliefs, and 10% noise beliefs, with the investor's adaptive transformation intensity set to 4. We use the initialization speci cation of spot market investors (including hedgers) suggested by Zhao et al [24], and the initial cash availability of speculators and arbitrageurs is set to 1,000,000 yuan. Based on the spot benchmark model, we use an agent-based model to construct a stock index futures market.…”

“…In recent years, several agent-based modeling studies on institutional design, such as Li et al [20], Wei et al [21], and Zhang et al [22], have emerged based on the specific context of the trading system in the Chinese market. Accordingly, agent-based modeling is widely used to explore the design of trading systems and the impact of investor behavior on market trends [23][24][25]. We use the agent-based modeling to construct a theoretical model of the order book of the stock index futures market, and then we calibrate the microbehavior of speculators, arbitrageurs, and hedgers in the market to match the trading mechanism, investor behavior, and investor structure of the real stock index futures market.…”

Cost-benefit analysis of trading strategies in the stock index futures market

“…The agent-based model views the financial market as a complex adaptive system that contains a plurality of heterogeneous agents. Based on bottom-up microscopic modeling methods and advanced computer simulation technologies, an agent-based model can deeply reveal the general laws of the financial market-an area that has garnered considerable research attention (Battiston et al 2016;Chen and Venkatachalam 2017;Lussange et al 2018;Iori and Porter 2018;Cui et al 2020;Zhao et al 2020).…”