CBS researcher awarded prominent grant

During the past 10 years financial markets have become increasingly computerized so that today the main activity and vast majority of orders in financial markets are generated by fully automated computer algorithms. These algorithms are programmed by humans, but once they are set to operate in markets, they do so independently and without human intervention. The aim of the project “AlgoFinance” is to provide a sociological examination of the implications of algorithmic finance, and Professor with special responsibilities Christian Borch from the Department of Management, Politics and Philosophy at CBS has been awarded the ERC Consolidator Grant of approximately DKK 12 million.

Three focus areas
The research project, the full title of which is “Algorithmic Finance: Inquiring into the Reshaping of Financial Markets”, has three main parts. The first is to examine the intra-firm consequences of algorithmic finance. Through interviews and ethnographic fieldwork, members of the CBS research team will examine the types of algorithms that trading firms deploy as well as the organisational contexts in which these algorithms are developed. While this first part of the project is concerned with how humans interrelate with and develop algorithms for trading purposes, the second part of the project brackets humans and examines the interaction between fully automated algorithms.
“This is a truly fascinating part of the project”, explains Christian Borch.
“We are dealing here with a type of interaction that might have huge implications on financial markets.”

For example, interacting trading algorithms are often said to be implicated in new types of market crashes, so-called flash crashes, explains Christian Borch, and he adds:

“The very interaction of algorithms, however, is poorly understood, partly because it cannot be directly observed. In response to this, and in order to better understand how such interactions unfold, we will develop a computer simulation of algorithmic interaction and its effects on, for instance, market stability and instability.”

The intention is to make the source code of the simulation publicly available so that market participants, regulators, academics and others are free to utilise it for their own purposes. Finally, the third part of the research project is to examine the forms of sociality that can be identified in contemporary financial markets dominated by algorithmic trading.

A multidisciplinary perspective
Christian Borch is very honoured and excited about this grant.

“The grant gives me a unique opportunity to study some highly complex and somewhat opaque processes in present-day financial markets. One thing that is particularly exciting is that the research project will approach algorithmic finance from a multidisciplinary perspective, with team members having backgrounds in philosophy, sociology, computer science and physics,” says Christian Borch. He adds:

“I expect that this particular combination of skills and competences will enable us to understand algorithmic finance in new and more comprehensive ways, following the process from the development and testing of algorithms in specific organisational settings to studying their interactions and market impact.”

“AlgoFinance” is a four-year project with a budget of around 1,600,000 EUR. Christian Borch will be the Principal Investigator of the project which will also include a number of post-docs. The project is expected to commence in June 2017.

If you have any questions, please contact Christian Borch