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|
|Official Date:||January 2011|
|Institution:||University of Warwick|
|Theses Department:||Department of Psychology|
|Supervisor(s)/Advisor:||Stewart, Neil, 1974-|
|Extent:||275 leaves : charts|
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