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A Multi‐agent System for Policy Design of Tick Size in Stock Index Futures Markets
Author(s) -
Wei Lijian,
Zhang Wei,
Xiong Xiong,
Zhao Yu
Publication year - 2014
Publication title -
systems research and behavioral science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.371
H-Index - 45
eISSN - 1099-1743
pISSN - 1092-7026
DOI - 10.1002/sres.2292
Subject(s) - tick size , market liquidity , stylized fact , futures contract , index (typography) , order (exchange) , economics , stock market , financial economics , business , monetary economics , finance , computer science , macroeconomics , paleontology , horse , biology , world wide web
This paper proposes a multi‐agent system for policy design on tick size in the China Securities Index (CSI) 300 index futures market. According to the investors' structure, trading frequency and order submission in the real CSI 300 index futures market, our multi‐agent system includes informed and uninformed traders, and the uninformed traders are classified into three types: intelligent traders, simple traders, and liquidity traders. We examine how tick size affects information dissemination efficiency and market liquidity by observing trading interaction between traders. In particular, we focus on examining price forecasting and order submission strategies. This multi‐agent system reproduces key characteristics of the price dynamics and stylized facts observable in the real CSI 300 index futures market. Simulations show that tick size has a contrary impact on information dissemination efficiency and market liquidity. While reducing tick size improves market liquidity, it also reduces information dissemination efficiency. Therefore, decision‐makers have to make a trade‐off between information dissemination efficiency and market liquidity in terms of tick size. Our model contributes to building a multi‐agent system realistically and thus reduces the modelling risk in policy design. Copyright © 2014 John Wiley & Sons, Ltd.