Group behaviour in financial markets
Leake, David E. (2011) Group behaviour in financial markets. PhD thesis, University of Warwick.
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Official URL: http://webcat.warwick.ac.uk:80/record=b2579944~S1
This thesis aims to revise the current understanding of the behaviour of different groups of traders in financial markets. Research involves statistical analysis of historic 'Commitment of Traders' reports, a U.S government dataset providing the long and short positions of core groups of traders, reported at weekly intervals over 17 years. Empirical work identifies a surprising level of consistency amongst different groups across 31 markets. A specific pattern is identified: speculators are found to increase their buying interest when prices are rising whilst commercial traders (or 'hedgers') increase their selling; the opposite pattern of behaviour occurs when prices are falling. The thesis explores the implications of this behaviour for existing models of financial markets by referencing a number of peer-reviewed studies. The agent-based computational model of Alfarano, Lux, and Wagner (2005) is implemented and analysed. A lack of validity is demonstrated in the interactions between the different types of traders in this model. These theoretical components are further shown to be typical of much of the literature in this area. An objective for the thesis is to correct this oversight by incorporating genuine patterns of trading behaviour into an existing computational model. The approach of Mike and Farmer (2008) is used for this purpose, being currently unique in that core components are calibrated from real-world data and no group-level representations are assumed. This model is extended to observe groups of traders with different levels of order-aggression: speculators are found to rely on market orders whereas commercial traders rely on limit orders. These preferences, in the absence of deeper theoretical considerations, are sufficient to account for the identified behaviour. A discussion is offered on the relevance of this finding for financial market regulators, who have typically focused on regulating types of traders, specifically speculators, rather than on types of trades.
|Item Type:||Thesis or Dissertation (PhD)|
|Subjects:||H Social Sciences > HG Finance|
|Library of Congress Subject Headings (LCSH):||Floor traders (Finance) -- Psychological aspects, Finance -- Econometric models|
|Institution:||University of Warwick|
|Theses Department:||Department of Psychology|
|Supervisor(s)/Advisor:||Stewart, Neil, 1974-|
|Extent:||275 leaves : charts|
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