Market fragmentation and market consolidation: Multiple steady states in systems of adaptive traders choosing where to trade

Aleksandra Alorić and Peter Sollich
Phys. Rev. E 99, 062309 – Published 21 June 2019

Abstract

Technological progress is leading to proliferation and diversification of trading venues, thus increasing the relevance of the long-standing question of market fragmentation versus consolidation. To address this issue quantitatively, we analyze systems of adaptive traders that choose where to trade based on their previous experience. We demonstrate that only based on aggregate parameters about trading venues, such as the demand-to-supply ratio, we can assess whether a population of traders will prefer fragmentation or specialization towards a single venue. We investigate what conditions lead to market fragmentation for populations with a long memory and analyze the stability and other properties of both fragmented and consolidated steady states. Finally, we investigate the dynamics of populations with finite memory; when this memory is long the true long-time steady states are consolidated but fragmented states are strongly metastable, dominating the behavior out to long times.

  • Figure
  • Figure
  • Figure
  • Figure
  • Figure
  • Figure
  • Figure
10 More
  • Received 19 February 2019
  • Revised 8 April 2019

DOI:https://doi.org/10.1103/PhysRevE.99.062309

©2019 American Physical Society

Physics Subject Headings (PhySH)

Interdisciplinary PhysicsStatistical Physics & Thermodynamics

Authors & Affiliations

Aleksandra Alorić*

  • Scientific Computing Laboratory, Center for the Study of Complex Systems, Institute of Physics Belgrade, University of Belgrade, Pregrevica 118, 11080 Belgrade, Serbia

Peter Sollich

  • Institut fur Theoretische Physik, Georg-August-Universität Göttingen, Friedrich-Hund-Platz 1, 37077 Göttingen, Germany and Disordered Systems Group, Department of Mathematics, King's College London, Strand, London WC2R 2LS, United Kingdom

  • *aleksandra.aloric@gmail.com

Article Text (Subscription Required)

Click to Expand

References (Subscription Required)

Click to Expand
Issue

Vol. 99, Iss. 6 — June 2019

Reuse & Permissions
Access Options
Author publication services for translation and copyediting assistance advertisement

Authorization Required


×
×

Images

×

Sign up to receive regular email alerts from Physical Review E

Log In

Cancel
×

Search


Article Lookup

Paste a citation or DOI

Enter a citation
×