Multi-Level Order-Flow Imbalance in a Limit Order Book
Trading and Market Microstructure
2019-10-29 v2 General Finance
Statistical Finance
Abstract
We study the multi-level order-flow imbalance (MLOFI), which is a vector quantity that measures the net flow of buy and sell orders at different price levels in a limit order book (LOB). Using a recent, high-quality data set for 6 liquid stocks on Nasdaq, we fit a simple, linear relationship between MLOFI and the contemporaneous change in mid-price. For all 6 stocks that we study, we find that the out-of-sample goodness-of-fit of the relationship improves with each additional price level that we include in the MLOFI vector. Our results underline how order-flow activity deep into the LOB can influence the price-formation process.
Keywords
Cite
@article{arxiv.1907.06230,
title = {Multi-Level Order-Flow Imbalance in a Limit Order Book},
author = {Ke Xu and Martin D. Gould and Sam D. Howison},
journal= {arXiv preprint arXiv:1907.06230},
year = {2019}
}
Comments
32 pages, 7 figures