Periodic Trading Activities in Financial Markets: Mean-field Liquidation Game with Major-Minor Players
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arXiv
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| Hauptverfasser: | , , , |
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| Format: | Preprint |
| Veröffentlicht: |
2024
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| _version_ | 1866914915611049984 |
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| author | Chen, Yufan Wu, Lan Xu, Renyuan Zhang, Ruixun |
| author_facet | Chen, Yufan Wu, Lan Xu, Renyuan Zhang, Ruixun |
| contents | Motivated by recent empirical findings on the periodic phenomenon of aggregated market volumes in equity markets, we aim to understand the causes and consequences of periodic trading activities through a game-theoretic perspective, examining market interactions among different types of participants. Specifically, we introduce a new mean-field liquidation game involving major and minor traders, where the major trader evaluates her strategy against a periodic targeting strategy while a continuum of minor players trade against her. We establish the existence and uniqueness of an open-loop Nash equilibrium. In addition, we prove an O(1/sqrt N) approximation rate of the mean-field solution to the Nash equilibrium in a major-minor game with N minor players. In equilibrium, minor traders exhibit front-running behaviors in both the periodic and trend components of their strategies, reducing the major trader's profit. Such strategic interactions diminish the strength of periodicity in both overall trading volume and asset prices. Our model rationalizes observed periodic trading activities in the market and offers new insights into market dynamics. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2408_09505 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Periodic Trading Activities in Financial Markets: Mean-field Liquidation Game with Major-Minor Players Chen, Yufan Wu, Lan Xu, Renyuan Zhang, Ruixun Mathematical Finance Theoretical Economics Dynamical Systems 91-XX, 91Gxx, 65Cxx, 39A50, 49N80, 91A16 Motivated by recent empirical findings on the periodic phenomenon of aggregated market volumes in equity markets, we aim to understand the causes and consequences of periodic trading activities through a game-theoretic perspective, examining market interactions among different types of participants. Specifically, we introduce a new mean-field liquidation game involving major and minor traders, where the major trader evaluates her strategy against a periodic targeting strategy while a continuum of minor players trade against her. We establish the existence and uniqueness of an open-loop Nash equilibrium. In addition, we prove an O(1/sqrt N) approximation rate of the mean-field solution to the Nash equilibrium in a major-minor game with N minor players. In equilibrium, minor traders exhibit front-running behaviors in both the periodic and trend components of their strategies, reducing the major trader's profit. Such strategic interactions diminish the strength of periodicity in both overall trading volume and asset prices. Our model rationalizes observed periodic trading activities in the market and offers new insights into market dynamics. |
| title | Periodic Trading Activities in Financial Markets: Mean-field Liquidation Game with Major-Minor Players |
| topic | Mathematical Finance Theoretical Economics Dynamical Systems 91-XX, 91Gxx, 65Cxx, 39A50, 49N80, 91A16 |
| url | https://arxiv.org/abs/2408.09505 |