Related papers: What really causes large price changes?
We study the relation between stock price changes and the difference in the number of sell and buy orders. Using a soft spin model, we describe the price impact of order imbalances and find an analogy to the fluctuation-dissipation theorem…
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…
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 identify and analyze statistical regularities and irregularities in the recent order flow of different NASDAQ stocks, focusing on the positions where orders are placed in the orderbook. This includes limit orders being placed outside of…
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…
Price gap, defined as the logarithmic price difference between the first two occupied price levels on the same side of a limit order book (LOB), is a key determinant of market depth, which is one of the dimensions of liquidity. However, the…
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.
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…
This paper investigates large fluctuations of Locational Marginal Prices (LMPs) in wholesale energy markets caused by volatile renewable generation profiles. Specifically, we study events of the form $\mathbb{P} \Big ( \mathbf{LMP} \notin…
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…
We define what "Price Impact" means, and how it is measured and modelled in the recent literature. Although this notion seems to convey the idea of a forceful and intuitive mechanism, we discuss why things might not be that simple.…
Using high-quality data, we report several statistical regularities of equity auctions in the Paris stock exchange. First, the average order book density is linear around the auction price at the time of auction clearing and has a large…
Buying and selling stocks causes price changes, which are described by the price impact function. To explain the shape of this function, we study the Island ECN orderbook. In addition to transaction data, the orderbook contains information…
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…
In this work, we aim to reconcile several apparently contradictory observations in market microstructure: is the famous "square-root law" of metaorder impact, which decays with time, compatible with the random-walk nature of prices and the…
We study a microscopic limit order book model, in which the order dynamics depend on the current best bid and ask price and the current volume density functions, simultaneously, and derive its macroscopic high-frequency dynamics. As opposed…
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…
The available liquidity at any time in financial markets falls largely short of the typical size of the orders that institutional investors would trade. In order to reduce the impact on prices due to the execution of large orders, traders…
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…
The trade size $\omega$ has direct impact on the price formation of the stock traded. Econophysical analyses of transaction data for the US and Australian stock markets have uncovered market-specific scaling laws, where a master curve of…