Browsing by Author "Sollich, Peter"

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    Fragmentation in trader preferences among multiple markets: market coexistence versus single market dominance
    Nicole, Robin; Alorić, Aleksandra; Sollich, Peter
    Technological advancement has led to an increase in the number and type of trading venues and a diversification of goods traded. These changes have re-emphasized the importance of understanding the effects of market competition: does proliferation of trading venues and increased competition lead to dominance of a single market or coexistence of multiple markets? In this paper, we address these questions in a stylized model of zero-intelligence traders who make repeated decisions at which of three available markets to trade. We analyse the model numerically and analytically and find that the traders’ decision parameters—memory length and how strongly decisions are based on past success—make the key difference between consolidated and fragmented steady states of the population of traders. All three markets coexist with equal shares of traders only when either learning is too weak and traders choose randomly, or when markets are identical. In the latter case, the population of traders fragments across the markets. With different markets, we note that market dominance is the more typical scenario. Overall we show that, contrary to previous research emphasizing the role of traders’ heterogeneity, market coexistence can emerge simply as a consequence of co-adaptation of an initially homogeneous population of traders.
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    Fragmentation in trader preferences among multiple markets: market coexistence versus single market dominance
    Nicole, Robin; Alorić, Aleksandra; Sollich, Peter
    Technological advancement has led to an increase in the number and type of trading venues and a diversification of goods traded. These changes have re-emphasized the importance of understanding the effects of market competition: does proliferation of trading venues and increased competition lead to dominance of a single market or coexistence of multiple markets? In this paper, we address these questions in a stylized model of zero-intelligence traders who make repeated decisions at which of three available markets to trade. We analyse the model numerically and analytically and find that the traders’ decision parameters—memory length and how strongly decisions are based on past success—make the key difference between consolidated and fragmented steady states of the population of traders. All three markets coexist with equal shares of traders only when either learning is too weak and traders choose randomly, or when markets are identical. In the latter case, the population of traders fragments across the markets. With different markets, we note that market dominance is the more typical scenario. Overall we show that, contrary to previous research emphasizing the role of traders’ heterogeneity, market coexistence can emerge simply as a consequence of co-adaptation of an initially homogeneous population of traders.
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    Market fragmentation and market consolidation: Multiple steady states in systems of adaptive traders choosing where to trade
    Alorić, Aleksandra; Sollich, Peter
    Technological progress is leading to proliferation and diversification of trading venues, thus increasing the relevance of the long-standing question of market fragmentation versus consolidation. To address this issue quantitatively, we analyze systems of adaptive traders that choose where to trade based on their previous experience. We demonstrate that only based on aggregate parameters about trading venues, such as the demand-to-supply ratio, we can assess whether a population of traders will prefer fragmentation or specialization towards a single venue. We investigate what conditions lead to market fragmentation for populations with a long memory and analyze the stability and other properties of both fragmented and consolidated steady states. Finally, we investigate the dynamics of populations with finite memory; when this memory is long the true long-time steady states are consolidated but fragmented states are strongly metastable, dominating the behavior out to long times.