Selection mechanisms affect volatility in evolving markets

David Rushing Dewhurst; Michael Vincent Arnold; Colin Michael Van Oort

doi:10.1145/3321707.3321734

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arXiv · 1812.05657

Selection mechanisms affect volatility in evolving markets

David Rushing Dewhurst·Michael Vincent Arnold·Colin Michael Van Oort

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Abstract

Financial asset markets are sociotechnical systems whose constituent agents are subject to evolutionary pressure as unprofitable agents exit the marketplace and more profitable agents continue to trade assets. Using a population of evolving zero-intelligence agents and a frequent batch auction price-discovery mechanism as substrate, we analyze the role played by evolutionary selection mechanisms in determining macro-observable market statistics. In particular, we show that selection mechanisms incorporating a local fitness-proportionate component are associated with high correlation between a micro, risk-aversion parameter and a commonly-used macro-volatility statistic, while a purely quantile-based selection mechanism shows significantly less correlation.

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David Rushing Dewhurst, Michael Vincent Arnold, Colin Michael Van Oort. 2018-12-13. Selection mechanisms affect volatility in evolving markets. https://doi.org/10.1145/3321707.3321734

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