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Analyzing order flows in limit order books with ratios of Cox-type intensities

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  • Ioane Muni Toke
  • Nakahiro Yoshida

Abstract

We introduce a Cox-type model for relative intensities of order flows in a limit order book. The model assumes that all intensities share a common baseline intensity, which may for example represent the global market activity. Parameters can be estimated by quasi-likelihood maximization, without any interference from the baseline intensity. Consistency and asymptotic behavior of the estimators are given in several frameworks, and model selection is discussed with information criteria and penalization. The model is well-suited for high-frequency financial data: fitted models using easily interpretable covariates show an excellent agreement with empirical data. Extensive investigation on tick data consequently helps identifying trading signals and important factors determining the limit order book dynamics. We also illustrate the potential use of the framework for out-of-sample predictions.

Suggested Citation

  • Ioane Muni Toke & Nakahiro Yoshida, 2020. "Analyzing order flows in limit order books with ratios of Cox-type intensities," Quantitative Finance, Taylor & Francis Journals, vol. 20(1), pages 81-98, January.
    • Handle: RePEc:taf:quantf:v:20:y:2020:i:1:p:81-98
    DOI: 10.1080/14697688.2019.1637927
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    Citations

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    Cited by:

    1. Ioane Muni Toke & Nakahiro Yoshida, 2020. "Marked point processes and intensity ratios for limit order book modeling," Papers 2001.08442, arXiv.org.
    2. Ioane Muni Toke & Nakahiro Yoshida, 2022. "Marked point processes and intensity ratios for limit order book modeling," Post-Print hal-02465428, HAL.
    3. Da Fonseca, José & Malevergne, Yannick, 2021. "A simple microstructure model based on the Cox-BESQ process with application to optimal execution policy," Journal of Economic Dynamics and Control, Elsevier, vol. 128(C).
    4. Simon Clinet, 2020. "Quasi-likelihood analysis for marked point processes and application to marked Hawkes processes," Papers 2001.11624, arXiv.org, revised Aug 2021.
    5. Simon Clinet, 2022. "Quasi-likelihood analysis for marked point processes and application to marked Hawkes processes," Statistical Inference for Stochastic Processes, Springer, vol. 25(2), pages 189-225, July.
    6. Shunya Chomei, 2023. "Empirical analysis in limit order book modeling for Nikkei 225 Stocks with Cox-type intensities," Papers 2302.01668, arXiv.org, revised Feb 2023.
    7. Emmanouil Sfendourakis & Ioane Muni Toke, 2021. "LOB modeling using Hawkes processes with a state-dependent factor," Papers 2107.12872, arXiv.org, revised Dec 2021.

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