Testing Continuous Double Auction Robustness with Simulated Order Flows

Summary

This study evaluates the Continuous Double Auction mechanism by examining waiting-time distributions in a simulated stock market. An agent-based model generates plausible orders and interactions through the market book. The researchers vary trader behavior and market microstructure across 36 setups, then analyze waiting times for the full series and separately for ask and bid orders. The reported results suggest that the auction mechanism continues to clear substantially different order flows. The comparison also indicates somewhat greater allocative efficiency for the Milan exchange simulation than for the NYSE. The authors say the simulated agent decisions and interactions reproduce some empirical findings, but the supplied description provides no distributional estimates, model specifications, or broader validation details. The findings therefore speak to the tested simulated settings and do not establish that the same behavior holds across all markets or real-world conditions.

Key ideas

• An agent-based model is used to generate plausible order flow and market-book interactions.
• Waiting-time distributions serve as a measure of Continuous Double Auction performance.
• The study varies trader behavior and market microstructure across 36 simulated setups.
• The auction mechanism clears a wide range of simulated order flows.
• The Milan exchange simulation appears somewhat more allocatively efficient than the NYSE simulation.

Tags

# Waiting Times in Simulated Stock Markets


# Waiting Times in Simulated Stock Markets









Exploiting a precise reproduction of a stock exchange, the robustness of the Continuous Double Auction (CDA) mechanism, evaluated by means of the waiting time distributions, has been proved versus 36 different set ups made by varying both the operators' behaviour and the market micro structure. The obtained results demonstrate that the CDA remains able to clear strongly different order flows, though the Milan stock exchange seemed to be a little more efficient than the NYSE under the allocative point of view, witnessing the intrinsic complexity of the stock market. The simulation has been built as an Agent Based Model in order to obtain a plausible order flow. The decisions of single agents and their interaction through the market book are realistic and reproduce some empirical analysis results. The mentioned results have been obtained either by the analysis of the complete pending time series and the same computation of the asks and bids series alone.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.