Related papers: An empirical behavioural order-driven model with p…
Although behavioral economics has demonstrated that there are many situations where rational choice is a poor empirical model, it has so far failed to provide quantitative models of economic problems such as price formation. We make a step…
We study the dynamics of the limit order book of liquid stocks after experiencing large intra-day price changes. In the data we find large variations in several microscopical measures, e.g., the volatility the bid-ask spread, the bid-ask…
In this paper we demonstrate a striking regularity in the way people place limit orders in financial markets, using a data set consisting of roughly seven million orders from the London Stock Exchange. We define the relative limit price as…
We study the analytical properties of a one-side order book model in which the flows of limit and market orders are Poisson processes and the distribution of lifetimes of cancelled orders is exponential. Although simplistic, the model…
Order submission and cancellation are two constituent actions of stock trading behaviors in order-driven markets. Order submission dynamics has been extensively studied for different markets, while order cancellation dynamics is less…
Using ultra-high-frequency data extracted from the order flows of 23 stocks traded on the Shenzhen Stock Exchange, we study the empirical regularities of order placement in the opening call auction, cool period and continuous auction. The…
We propose and study a simple stochastic model for the dynamics of a limit order book, in which arrivals of market order, limit orders and order cancellations are described in terms of a Markovian queueing system. Through its analytical…
We propose a microscopic model to describe the dynamics of the fundamental events in the limit order book (LOB): order arrivals and cancellations. It is based on an operator algebra for individual orders and describes their effect on the…
We use standard physics techniques to model trading and price formation in a market under the assumption that order arrival and cancellations are Poisson random processes. This model makes testable predictions for the most basic properties…
I present an overview of some recent advancements on the empirical analysis and theoretical modeling of the process of price formation in financial markets as the result of the arrival of orders in a limit order book exchange. After…
In financial markets, the order flow, defined as the process assuming value one for buy market orders and minus one for sell market orders, displays a very slowly decaying autocorrelation function. Since orders impact prices, reconciling…
We develop a behavioral model for liquidity and volatility based on empirical regularities in trading order flow in the London Stock Exchange. This can be viewed as a very simple agent based model in which all components of the model are…
We introduce and study a simple model of a limit order-driven market. Traders in this model can either trade at the market price or place a limit order, i.e. an instruction to buy (sell) a certain amount of the stock if its price falls…
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…
Pricing decisions of companies require an understanding of the causal effect of a price change on the demand. When real-life pricing experiments are infeasible, data-driven decision-making must be based on alternative data sources such as…
We study the dynamics of order flows around large intraday price changes using ultra-high-frequency data from the Shenzhen Stock Exchange. We find a significant reversal of price for both intraday price decreases and increases with a…
It is known that the impact of transactions on stock price (market impact) is a concave function of the size of the order, but there exists little quantitative theory that suggests why this is so. I develop a quantitative theory for the…
Motivated by the desire to bridge the gap between the microscopic description of price formation (agent-based modeling) and the stochastic differential equations approach used classically to describe price evolution at macroscopic time…
Order cancellation process plays a crucial role in the dynamics of price formation in order-driven stock markets and is important in the construction and validation of computational finance models. Based on the order flow data of 18 liquid…
We propose a new model for the level I of a Limit Order Book (LOB), which incorporates the information about the standing orders at the opposite side of the book after each price change and the arrivals of new orders within the spread. Our…