Human Bias in Algorithmic Trading

28 Pages Posted: 8 Jan 2014

See all articles by John Paul Broussard

John Paul Broussard

University of Oklahoma; Rutgers University

Andrei L. Nikiforov

Rutgers University

Date Written: December 30, 2013

Abstract

This paper documents a stark periodicity in intraday volume and in the number of trades. We find activity in both variables spikes by about 20% at regular intervals of 5 or 10 minutes throughout the trading day. We argue that this activity is the result of algorithmic trading influenced by human traders/programmers’ behavioral bias to transact on round time marks. An alternative explanation, that algorithms choose to concentrate their trades in time to take advantage of lower costs or to protect themselves from better informed traders, is not supported.

Keywords: Algorithmic Trading, Microstructure, Behavioral Bias

JEL Classification: G10, G19

Suggested Citation

Broussard, John Paul and Nikiforov, Andrei L., Human Bias in Algorithmic Trading (December 30, 2013). Available at SSRN: https://ssrn.com/abstract=2375739 or http://dx.doi.org/10.2139/ssrn.2375739

John Paul Broussard (Contact Author)

University of Oklahoma ( email )

Norman, OK 73019
United States
4053255591 (Phone)

HOME PAGE: http://https://www.ou.edu/price/finance/faculty/john-paul-broussard

Rutgers University ( email )

Camden, NJ 08102
United States
+18562256647 (Phone)

Andrei L. Nikiforov

Rutgers University ( email )

Camden, NJ 08102
United States
856-225-6594 (Phone)

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