Faculty of Economics and Business Administration Publications Database

Humans vs. Algorithms – Who Follows Newcomb-Benford’s Law Better with Their Order Volume?

Abstract: Newcomb-Benford’s Law (NBL) is a well known regularity in the distribution of first significant digits (FSD) and therefore research in this field is manifold. As of 2012 research in the domain of financial markets is quite scarce, especially in the field of algorithmic trading. We pose the question whether order submission volumes of algorithmic traders and human traders follow NBL. Results in this context might help regulators to detect suspicious market activity and market participants to quantify the amount of algorithmic trading. Our findings indicate that the submitted order volumes of both groups follow NBL more than the uniform distribution. Comparing these two groups, we give a proof that algorithmic traders match NBL better than human traders, as human traders tend to overuse the FSD five.
Keywords: Algorithmic Trading; Electronic Trading; Financial Markets; Newcomb-Benford s Law
Year: 2012
Link External Source: Online Version
Book Title: Enterprise Applications and Services in the Finance Industry - Lecture Notes in Business Information Processing
ISBN: 978-3-642-36219-4
Adress: Heidelberg 2012
Editor: Rabhi, Fethi A. / Gomber, Peter
Volume: 135
Publisher: Springer Berlin Heidelberg
Pages: 61 - 70