How do Normal Traders and Sharp Traders Make Profits in the Chinese Security Market?

Mingyang Zhang, Juliang Zhang, T. C.E. Cheng, Guowei Hua

Research output: Journal article publicationJournal articleAcademic researchpeer-review

Abstract

In this paper, we consider the strategic interaction between the normal and sharp traders in a dynamic limit-order security market and its impact on the Chinese security market at different market volatility levels. We find that when the proportion of sharp traders is less than a threshold in an order-driven market, the sharp traders who submit limit orders will get more returns than the normal traders. The participation of sharp traders in the market can increase the total social welfare of all the traders. In addition, we show that:(1) when the market volatility level is generally low, the short-term sharp traders benefit from larger volatility; (2) when the market volatility level is generally high, the insider/cheating sharp traders with high-frequent trading rather than the short-term sharp traders benefit from extreme high volatility; (3) when the market volatility level is moderate, the sharp traders can increase market liquidity.

Original languageEnglish
Pages (from-to)203-234
Number of pages32
JournalJournal of Systems Science and Systems Engineering
Volume29
Issue number2
DOIs
Publication statusPublished - 1 Apr 2020

Keywords

  • limit-order market
  • order-driven market
  • Sharp trader
  • strategic interaction

ASJC Scopus subject areas

  • Control and Systems Engineering
  • Information Systems

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