Unveiling the relation between herding and liquidity with trader lead-lag networks

Campajola C., Lillo F., Tantari D

Quantitative Finance, 2020

Abstract

We propose a method to infer lead-lag networks of traders from the observation of their trade record as well as to reconstruct their state of supply and demand when they do not trade. The method relies on the Kinetic Ising model to describe how information propagates among traders, assigning a positive or negative ‘opinion’ to all agents about whether the traded asset price will go up or down. This opinion is reflected by their trading behavior, but whenever the trader is not active in a given time window, a missing value will arise. Using a recently developed inference algorithm, we are able to reconstruct a lead-lag network and to estimate the unobserved opinions, giving a clearer picture about the state of supply and demand in the market at all times. We apply our method to a dataset of clients of a major dealer in the Foreign Exchange market at the 5 minute time scale. We identify leading players in the market and define a herding measure based on the observed and inferred opinions. We show the causal link between herding and liquidity in the inter-dealer market used by dealers to rebalance their inventories.

URL:

Taylor & Francis Online

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Designing for Trust in a Blockchain Platform

Zavolokina, L., Zani, N., & Schwabe, G.

IEEE Transactions on Engineering Management (IEEE TEM) Journal

Abstract

Trust is a crucial component for successful transactions regardless of whether they are executed in physical or virtual spaces. Blockchain technology is often discussed in the context of trust and referred to as a trust-free, trustless, or trustworthy technology. However, the question of how the trustworthiness of blockchain platforms should be demonstrated and proven to end users still remains open. While there may be some genuine trust in the blockchain technology itself, on an application level trust in an IT artifact needs to be established. In this article, we examine how trust-supporting design elements may be implemented to foster an end user’s trust in a blockchain platform. We follow the design science paradigm and suggest a practically useful set of design elements that can help designers of blockchain platforms to build more trustworthy systems.

URL:

Zora

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Potential and Limits of Blockchain Technology for Networked Businesses

Bons., R. W. H., Versendaal, J., Zavolokina, L., & Shi, L

Electronic Markets Journal

Abstract

Blockchains might facilitate and contribute to other disruptive innovations, such as the sharing economy, the circular economy as well as smart grids that help businesses and private households to become independent in their energy provisioning. The challenge for scientists now is to distinguish between the hype and the core value of this phenomenon, to reason about and to reflect on the business potential, including the potential to disrupt trusted business models, but also to address some of the deeper technical foundations such as scalability, accountability, and security. This is the time for re- search to explore descriptive, explanatory and design research questions on Blockchain technology.

URL:

Springer

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How Can We Reduce Information Asymmetries and Enhance Trust in ‘The Market for Lemons’?

Zavolokina, L., Schlegel, M., & Schwabe, G.

Information Systems and e-Business Management Journal (ISeBM)

Abstract

The used car market is characterized by information asymmetries and mistrust. Blockchain technology promises to resolve these problems using a system which stores data over the life cycle of a vehicle. However, while blockchain technology is strong in preserving the stored information, sense-making of this information is still essential to bring value to end consumers of the system. In this paper, we take an exploratory approach and create a prototype, which is then evaluated in realistic car sale conversations between buyers and sellers. We demonstrate and discuss how the interplay of different design elements of an application, built on top of a blockchain-based platform, helps to reduce information asymmetries and enhance trust. Our findings suggest that though providing more information about a used product (a car) leads to fewer information asymmetries in general, a reputation mechanism and data analysis are both beneficial in improving the situation further. As for trust, such a system enhances trust between buyers and sellers and, in general, makes the overall purchase process more trustworthy. However, to achieve these positive effects, the quality of the stored information should be guaranteed and properly communicated to the end-user.

URL:

ResearchGate

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Value Creation From a Decentralized Car Ledger

Bauer, I., Zavolokina, L., & Schwabe, G.

Frontiers in Blockchain

Abstract

Blockchain technology is expected to create a variety of new opportunities for businesses. Yet, little is known about how the technology actually enables to create value and how companies will be able to exploit true business value. However, without a clear understanding of the value creation potential from the technology, and corresponding adaption of business practices, the realization of value is doomed to failure. Hence, we contribute to this gap by exploring and explicating the specificities of value creation from blockchain in the ecosystem of a car. In the course of an exploratory case study analysis, over a time period of 2 years, we conducted three iterations of interviews and workshops with industry and blockchain experts from five diverse stakeholder groups. In brief, we provide early evidence that (1) blockchain enables value creation through: Distributed Product Innovation, Shared Operational Efficiency, and Controlled Customer Intimacy. Furthermore, we discuss our learnings for businesses in other domains aiming to leverage value from blockchain technology. We do so, by deriving guidelines for each blockchain value discipline. Furthermore, we give recommendations on how blockchain projects in ecosystems should approach multiple blockchain value potentials.

URL:

Frontiers

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Management, Governance and Value Creation in a Blockchain Consortium

Zavolokina, L., Ziolkowski, R., Bauer, I., & Schwabe, G.

MIS Quarterly Executive (MISQE) Journal

Abstract

In recent years, an increasing number of blockchain consortia have emerged. However, little is known about how these consortia are developed and what tensions emerge in such collaborations. We describe the evolution of the cardossier blockchain consortium in Switzerland, which is building a system for managing car data and seeking to improve collaboration between players in the car-related ecosystem. From our involvement with the cardossier project, we have gained insights that will be valuable for enterprises considering whether to join a blockchain consortium.

URL:

Zora

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Is there a market for trusted car data?

Ingrid BauerLiudmila Zavolokina & Gerhard Schwabe 

Electronic Markets volume 30, pages211–225(2020)

Abstract

The used-car trade is characterized by information asymmetries between buyers and sellers leading to uncertainty and distrust, thus causing market inefficiencies. Prior research has shown that blockchain offers a solution: a transparent, trustworthy and verified car history that addresses these issues in the market for ‘lemons’. Yet, whether or not there really is a market for trusted car data remains an open question. In particular, it is unclear if trusted car data increases transparency in the market for lemons and how market participants value increased transparency. Hence, through a market game with 50 participants, we explored the effects of trusted car data on the sales price of the cars, and the relative revenue of buyers and sellers. Additionally, we conducted interviews with the participants to elicit the perceived customer value. The results show that blockchain enables an increase in transparency and creates value for both buyers and sellers.

URL:

Springer

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Improving Investment Decisions with Simulated Experience

Bradbury, Meike and Hens, Thorsten and Zeisberger, Stefan

Abstract

We apply a new and innovative approach to communicating risks associated with financial
products that should support investors in making better investment decisions. In our experiments,
participants are able to gain ”simulated experience” by random sampling of a previously described return
distribution. We find that simulated experience considerably improves participants’ understanding of the
underlying risk-return profile and prompts them to reconsider their investment decisions and to choose
riskier financial products without regretting their higher risk-taking behavior afterwards. This method
of experienced-based learning has high potential for being integrated into real-world applications and
services.

URL:

Zora

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Finite blockchain games

Christian Ewerhart

Economics Letters 197 (2020)

Abstract

This paper studies the dynamic construction of a blockchain by competitive miners. In contrast to the literature, we assume a finite time horizon. Moreover, miners are rewarded for blocks that eventually become part of the longest chain. It is shown that popular mining strategies such as adherence to conservative mining or to the longest-chain rule constitute pure-strategy Nash equilibria. However, these equilibria are not subgame perfect.

A Taxonomy of Blockchain Technologies: Principles of Identification and Classification

Paolo Tasca, Claudio J. Tessone

Ledger, 4 (2019)

Abstract

A comparative study across the most widely known blockchain technologies is conducted with a bottom-up approach. Blockchains are disentangled into building blocks. Each building block is then hierarchically classified in main and subcomponents. Then, alternative layouts for the subcomponents are identified and compared between them. Finally, a taxonomy tree summarises the study and provides a navigation tool across different blockchain architectural configurations.

The Bitcoin game: Ethno-resonance as method

Donncha Kavanagh, Gianluca Miscione, PJ Ennis

Organization 26.4 (2019): 517-536

Abstract

The global financial crisis and the contemporaneous emergence of the digital currency Bitcoin invite us to think about money and how it often functions almost imperceptibly in society. In this article, we show that Bitcoin is a ‘new object of concern’ that also compels us to reimagine ethnography in a digital age. We present a method, which we term ethno-resonance, that is both a reaction to the conditions presented by the Bitcoin phenomenon and a way of maintaining critical distance from its cyberlibertarian politics. We explicate six aspects of the method, framed around answers to what, why, how, who, when and where questions. Applied to cryptocurrencies, the method leads us to depict Bitcoin as a game, and we analyse the game’s dynamics through mapping the interplay between four foundational myths that animate, complicate and sustain the game. More broadly, this contributes to our understanding of the nature of money and alternative currencies.

The digital traces of bubbles: feedback cycles between socio-economic signals in the Bitcoin economy

David Garcia, Claudio J. Tessone, Pavlin Mavrodiev and Nicolas Perony

Journal of the Royal Society: Interface, pp. 20140623, vol. 11 (2014) 

Abstract

What is the role of social interactions in the creation of price bubbles? Answering this question requires obtaining collective behavioural traces generated by the activity of a large number of actors. Digital currencies offer a unique possibility to measure socio-economic signals from such digital traces. Here, we focus on Bitcoin, the most popular cryptocurrency. Bitcoin has experienced periods of rapid increase in exchange rates (price) followed by sharp decline; we hypothesize that these fluctuations are largely driven by the interplay between different social phenomena. We thus quantify four socio-economic signals about Bitcoin from large datasets: price on online exchanges, volume of word-of-mouth communication in online social media, volume of information search and user base growth. By using vector autoregression, we identify two positive feedback loops that lead to price bubbles in the absence of exogenous stimuli: one driven by word of mouth, and the other by new Bitcoin adopters. We also observe that spikes in information search, presumably linked to external events, precede drastic price declines. Understanding the interplay between the socio-economic signals we measured can lead to applications beyond cryptocurrencies to other phenomena that leave digital footprints, such as online social network usage.