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Fat tails and multi-scaling in a simple model of limit order markets

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  • Krause, Andreas
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    Abstract

    We use a simple model where traders submit limit orders which are cleared in a double auction market. The limit prices are set by traders randomly, for buyers around a long-term trend and for sellers in a narrow band around their purchase price. Orders which are not filled within a specific time frame are randomly assigned a new limit price. In this framework we find evidence for the endogenous emergence of fat tails in the distribution of returns and multi-scaling whose origin is attributed to the market structure.

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    Bibliographic Info

    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 368 (2006)
    Issue (Month): 1 ()
    Pages: 183-190

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    Handle: RePEc:eee:phsmap:v:368:y:2006:i:1:p:183-190

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    Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

    Related research

    Keywords: Power-law; Multi-scaling; Limit order market; Zero-intelligence;

    References

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    Cited by:
    1. Withanawasam, R.M. & Whigham, P.A. & Crack, T.F., 2013. "Characterising trader manipulation in a limit-order driven market," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 93(C), pages 43-52.

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