Related papers: Market Impact: A Systematic Study of Limit Orders
This paper is split in three parts: first we use labelled trade data to exhibit how market participants accept or not transactions via limit orders as a function of liquidity imbalance; then we develop a theoretical stochastic control…
We propose a limit order book (LOB) model with dynamics that account for both the impact of the most recent order and the shape of the LOB. We present an empirical analysis showing that the type of the last order significantly alters the…
We investigate the behavior of limit order books on the meso-scale motivated by order execution scheduling algorithms. To do so we carry out empirical analysis of the order flows from market and limit order submissions, aggregated from…
We develop a theory which applies to any market dynamics that satisfy a fair market assumption on the nullity of the average profit of simple market making strategies. We show that for any such fair market, there exists a martingale fair…
This note complements the inspiring work on dimensional analysis and market microstructure by Kyle and Obizhaeva [18]. Following closely these authors, our main result shows by a similar argument as usually applied in physics the following…
This study pioneers the application of the market microstructure framework to an informal financial market. By scraping data from websites and social media about the Cuban informal currency market, we model the dynamics of bid/ask…
Adapting a simple biological model, we study the effects of control on the market. Companies are depicted as sites on a lattice and labelled by a fitness parameter (some `company-size' indicator). The chance of survival of a company on the…
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…
With the proliferation of algorithmic high-frequency trading in financial markets, the Limit Order Book has generated increased research interest. Research is still at an early stage and there is much we do not understand about the dynamics…
We study the relaxation dynamics of the bid-ask spread and of the midprice after a sudden, large variation of the spread, corresponding to a temporary crisis of liquidity in a double auction financial market. We find that the spread decays…
The impact of trades on asset prices is a crucial aspect of market dynamics for academics, regulators and practitioners alike. Recently, universal and highly nonlinear master curves were observed for price impacts aggregated on all…
We propose a static equilibrium model for limit order book where profit-maximizing investors receive an information signal regarding the liquidation value of the asset and execute via a competitive dealer with random initial inventory, who…
We develop an empirical behavioural order-driven (EBOD) model, which consists of an order placement process and an order cancellation process. Price limit rules are introduced in the definition of relative price. The order placement process…
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…
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 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…
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…
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…
Market impact has become a subject of increasing concern among academics and industry experts. We put forward a price impact model which considers the heteroscedasticity of price in the time dimension and dependency between permanent impact…
We propose a general framework to describe the impact of different events in the order book, that generalizes previous work on the impact of market orders. Two different modeling routes can be considered, which are equivalent when only…