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Studies of the limit order book around large price changes

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  • Bence Toth
  • Janos Kertesz
  • J. Doyne Farmer

Abstract

We study the dynamics of the limit order book of liquid stocks after experiencing large intra-day price changes. In the data we find large variations in several microscopical measures, e.g., the volatility the bid-ask spread, the bid-ask imbalance, the number of queuing limit orders, the activity (number and volume) of limit orders placed and canceled, etc. The relaxation of the quantities is generally very slow that can be described by a power law of exponent $\approx0.4$. We introduce a numerical model in order to understand the empirical results better. We find that with a zero intelligence deposition model of the order flow the empirical results can be reproduced qualitatively. This suggests that the slow relaxations might not be results of agents' strategic behaviour. Studying the difference between the exponents found empirically and numerically helps us to better identify the role of strategic behaviour in the phenomena.

Suggested Citation

  • Bence Toth & Janos Kertesz & J. Doyne Farmer, 2009. "Studies of the limit order book around large price changes," Papers 0901.0495, arXiv.org, revised Jun 2009.
    • Handle: RePEc:arx:papers:0901.0495
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    References listed on IDEAS

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    1. Armand Joulin & Augustin Lefevre & Daniel Grunberg & Jean-Philippe Bouchaud, 2008. "Stock price jumps: news and volume play a minor role," Papers 0803.1769, arXiv.org.
    2. Maslov, Sergei, 2000. "Simple model of a limit order-driven market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 278(3), pages 571-578.
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    Cited by:

    1. Fabrizio Pomponio & Frédéric Abergel, 2013. "Multiple-limit trades : empirical facts and application to lead-lag measures," Post-Print hal-00745317, HAL.
    2. Paolo Mazza & Mikael Petitjean, 2019. "Testing the effect of technical analysis on market quality and order book dynamics," Applied Economics, Taylor & Francis Journals, vol. 51(18), pages 1947-1976, April.
    3. Zhi-Qiang Jiang & Wen-Jie Xie & Xiong Xiong & Wei Zhang & Yong-Jie Zhang & W. -X. Zhou, 2012. "Trading networks, abnormal motifs and stock manipulation," Papers 1301.0007, arXiv.org.
    4. Hai-Chuan Xu & Wei Zhang & Yi-Fang Liu, 2013. "Short-term Market Reaction after Trading Halts in Chinese Stock Market," Papers 1309.1138, arXiv.org, revised Jun 2014.
    5. Wei Cui & Anthony Brabazon & Michael O'Neill, 2011. "Dynamic trade execution: a grammatical evolution approach," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 2(1/2), pages 4-31.
    6. Xu, Hai-Chuan & Zhang, Wei & Liu, Yi-Fang, 2014. "Short-term market reaction after trading halts in Chinese stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 401(C), pages 103-111.
    7. Alex Langnau & Yanko Punchev, 2011. "Stochastic Price Dynamics Implied By the Limit Order Book," Papers 1105.4789, arXiv.org.
    8. Andor, György & Bohák, András, 2017. "Identifying events in financial time series – A new approach with bipower variation," Finance Research Letters, Elsevier, vol. 22(C), pages 42-48.
    9. Antonio Briola & Silvia Bartolucci & Tomaso Aste, 2024. "Deep Limit Order Book Forecasting," Papers 2403.09267, arXiv.org, revised Mar 2024.
    10. repec:hal:wpaper:hal-00745317 is not listed on IDEAS
    11. Havran, Dániel & Erb, Tamás, 2015. "Mit veszítünk a piaci súrlódásokkal?. A pénzügyi piacok mikrostruktúrája [Trading mechanisms and market frictions. Microstructure of the financial markets]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 229-262.

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