Related papers: Regularities and Irregularities in Order Flow Data
The distribution of returns in financial time series exhibits heavy tails. In empirical studies, it has been found that gaps between the orders in the order book lead to large price shifts and thereby to these heavy tails. We set up an…
R. Cont and A. de Larrard (SIAM J. Finan. Math, 2013) introduced a tractable stochastic model for the dynamics of a limit order book, computing various quantities of interest such as the probability of a price increase or the diffusion…
In this article we revisit the classic problem of tatonnement in price formation from a microstructure point of view, reviewing a recent body of theoretical and empirical work explaining how fluctuations in supply and demand are slowly…
Financial markets can be described on several time scales. We use data from the limit order book of the London Stock Exchange (LSE) to compare how the fluctuation dominated microstructure crosses over to a more systematic global behavior.
Using Trades and Quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delicate interplay between two opposite tendencies: long-range correlated market orders that lead to…
This article provides a novel framework to evaluate limit order tactics that highlights expected fill price, adverse price selection cost, and opportunity cost. We formulate the problem of optimal execution of market orders with nonlinear…
Disordered systems like liquids, gels, glasses, or granular materials are not only ubiquitous in daily life and in industrial applications but they are also crucial for the mechanical stability of cells or the transport of chemical and…
We generalise the description of the dynamics of the order book of financial markets in terms of a Brownian particle embedded in a fluid of incoming, exiting and annihilating particles by presenting a model of the velocity on each side (buy…
We study trade-based manipulation of stock prices from the perspective of complex trading networks constructed by using detailed information of trades. A stock trading network consists of nodes and directed links, where every trader is a…
The common wisdom argues that, in general, large trades cause large price changes, while small trades cause small price changes. However, for extremely large price changes, the trade size and news play a minor role, while the liquidity…
We analyse two models of liquidity provision to determine the retail traders' preference for marketable order routing. Order internalization is captured by a model of market makers competing for the retail order flow in a Bertrand fashion.…
We consider a simple model for the evolution of a limit order book in which limit orders of unit size arrive according to independent Poisson processes. The frequencies of buy limit orders below a given price level, respectively sell limit…
Conventional models of matching markets assume that monetary transfers can clear markets by compensating for utility differentials. However, empirical patterns show that such transfers often fail to close structural preference gaps. This…
We derive a continuous time model for the joint evolution of the mid price and the bid-ask spread from a multiscale analysis of the whole limit order book (LOB) dynamics. We model the LOB as a multiclass queueing system and perform our…
Understanding the mutual relationships between information flows and social activity in society today is one of the cornerstones of the social sciences. In financial economics, the key issue in this regard is understanding and quantifying…
Markets have internal dynamics leading to excess volatility and other phenomena that are difficult to explain using rational expectations models. This paper studies these using a nonequilibrium price formation rule, developed in the context…
The latent space of normalizing flows must be of the same dimensionality as their output space. This constraint presents a problem if we want to learn low-dimensional, semantically meaningful representations. Recent work has provided…
Volume imbalance in a limit order book is often considered as a reliable indicator for predicting future price moves. In this work, we seek to analyse the nuances of the relationship between prices and volume imbalance. To this end, we…
While the market impact of aggressive orders has been extensively studied, the impact of passive orders, those executed through limit orders, remains less understood. The goal of this paper is to investigate passive market impact by…
The modeling of the limit order book is directly related to the assumptions on the behavior of real market participants. This paper is twofold. We first present empirical findings that lay the ground for two improvements to these models.The…