Related papers: Why is order flow so persistent?
We study the optimal order placement strategy with the presence of a liquidity cost. In this problem, a stock trader wishes to clear her large inventory by a predetermined time horizon $T$. A trader uses both limit and market orders, and a…
High Frequency Trading (HFT) represents an ever growing proportion of all financial transactions as most markets have now switched to electronic order book systems. The main goal of the paper is to propose continuous time equations which…
In this article, we present a discrete time modeling framework, in which the shape and dynamics of a Limit Order Book (LOB) arise endogenously from an equilibrium between multiple market participants (agents). We use the proposed modeling…
Herding, where investors imitate others' decisions rather than relying on their own analysis, is a prevalent phenomenon in financial markets. Excessive herding distorts rational decisions, amplifies volatility, and can be exploited by…
We propose a dynamical theory of market liquidity that predicts that the average supply/demand profile is V-shaped and {\it vanishes} around the current price. This result is generic, and only relies on mild assumptions about the order flow…
This study examines the impact of different computing implementations of clearing mechanisms on multi-asset price dynamics within an artificial stock market framework. We show that sequential processing of order books introduces a…
In this paper, we study the herding phenomena in financial markets arising from the combined effect of (1) non-coordinated collective interactions between the market players and (2) concurrent reactions of market players to dynamic market…
Loyal buyer-seller relationships can arise by design, e.g. when a seller tailors a product to a specific market niche to accomplish the best possible returns, and buyers respond to the dedicated efforts the seller makes to meet their needs.…
High-frequency trading is prevalent, where automated decisions must be made quickly to take advantage of price imbalances and patterns in price action that forecast near-future movements. While many algorithms have been explored and tested,…
Lost sales inventory models with large lead times, which arise in many practical settings, are notoriously difficult to optimize due to the curse of dimensionality. In this paper we show that when lead times are large, a very simple…
We examine optimal execution models that take into account both market microstructure impact and informational costs. Informational footprint is related to order flow and is represented by the trader's influence on the flow imbalance…
We investigate the random walk of prices by developing a simple model relating the properties of the signs and absolute values of individual price changes to the diffusion rate (volatility) of prices at longer time scales. We show that this…
This paper considers a parallel system of queues fed by independent arrival streams, where the service rate of each queue depends on the number of customers in all of the queues. Necessary and sufficient conditions for the stability of the…
We study strategic interactions in a broker-mediated market in which agents learn and exploit each other's private information. A broker provides liquidity to an informed trader and to noise traders while managing inventory in a lit market.…
We investigate the impact of order flow imbalance (OFI) on price movements in equity markets in a multi-asset setting. First, we propose a systematic approach for combining OFIs at the top levels of the limit order book into an integrated…
Understanding the statistical properties of recurrence intervals of extreme events is crucial to risk assessment and management of complex systems. The probability distributions and correlations of recurrence intervals for many systems have…
Buying or selling assets leads to transaction costs for the investor. On one hand, it is well know to all market practionaires that the transaction costs are positive on average and present therefore systematic loss. On the other hand, for…
We review the evidence that the erratic dynamics of markets is to a large extent of endogenous origin, i.e. determined by the trading activity itself and not due to the rational processing of exogenous news. In order to understand why and…
While the long-ranged correlation of market orders and their impact on prices has been relatively well studied in the literature, the corresponding studies of limit orders and cancellations are scarce. We provide here an empirical study of…
Organizations are often unable to align the interests of all stakeholders with the financial success of the organization (e.g. due to regulation). However, continuous organizations (COs) introduce a paradigm shift. COs offer immediate…