Related papers: Order flow and price formation
Trading algorithms that execute large orders are susceptible to exploitation by order anticipation strategies. This paper studies the influence of order anticipation strategies in a multi-investor model of optimal execution under transient…
Order flow in equity markets is remarkably persistent in the sense that order signs (to buy or sell) are positively autocorrelated out to time lags of tens of thousands of orders, corresponding to many days. Two possible explanations are…
It has been suggested that marked point processes might be good candidates for the modelling of financial high-frequency data. A special class of point processes, Hawkes processes, has been the subject of various investigations in the…
We study the cause of large fluctuations in prices in the London Stock Exchange. This is done at the microscopic level of individual events, where an event is the placement or cancellation of an order to buy or sell. We show that price…
This work's purpose is to understand the dynamics of limit order books in order-driven markets. We try to illustrate a dynamical trading mechanism attached to the microstructure of limit order markets. We capture the iterative nature of…
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…
Latent order book models have allowed for significant progress in our understanding of price formation in financial markets. In particular they are able to reproduce a number of stylized facts, such as the square-root impact law. An…
This article provides a simple explanation of the asymptotic concavity of the price impact of a meta-order via the microstructural properties of the market. This explanation is made more precise by a model in which the local relationship…
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…
Forecasting the movements of stock prices is one the most challenging problems in financial markets analysis. In this paper, we use Machine Learning (ML) algorithms for the prediction of future price movements using limit order book data.…
Market participants regularly send bid and ask quotes to exchange-operated limit order books. This creates an optimization challenge where their potential profit is determined by their quoted price and how often their orders are…
Through the analysis of a dataset of ultra high frequency order book updates, we introduce a model which accommodates the empirical properties of the full order book together with the stylized facts of lower frequency financial data. To do…
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…
We analyze an optimal trade execution problem in a financial market with stochastic liquidity. To this end we set up a limit order book model in which both order book depth and resilience evolve randomly in time. Trading is allowed in both…
We present a perturbation theory of the market impact based on an extension of the framework proposed by [Loeper, 2018] -- originally based on [Liu and Yong, 2005] -- in which we consider only local linear market impact. We study the…
The article is an empirical study of market impact through order book events. It describes a mechanism of extracting an average participation rate and a market impact of small orders which represent individual slices of large metaorders.…
Market making refers to a form of trading in financial markets characterized by passive orders which add liquidity to limit order books. Market makers are important for the proper functioning of financial markets worldwide. Given the…
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 study the relationship between price spread, volatility and trading volume. We find that spread forms as a result of interplay between order liquidity and order impact. When trading volume is small adding more liquidity helps improve…
Recently, most stock exchanges in the U.S. employ maker-taker fees, in which an exchange pays rebates to traders placing orders in the order book and charges fees to traders taking orders from the order book. Maker-taker fees encourage…