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Asymmetric statistics of order books: The role of discreteness and evidence for strategic order placement

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  • A. Zaccaria
  • M. Cristelli
  • V. Alfi
  • F. Ciulla
  • L. Pietronero
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    Abstract

    We show that the statistics of spreads in real order books is characterized by an intrinsic asymmetry due to discreteness effects for even or odd values of the spread. An analysis of data from the NYSE order book points out that traders' strategies contribute to this asymmetry. We also investigate this phenomenon in the framework of a microscopic model and, by introducing a non-uniform deposition mechanism for limit orders, we are able to quantitatively reproduce the asymmetry found in the experimental data. Simulations of our model also show a realistic dynamics with a sort of intermittent behavior characterized by long periods in which the order book is compact and liquid interrupted by volatile configurations. The order placement strategies produce a non-trivial behavior of the spread relaxation dynamics which is similar to the one observed in real markets.

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    File URL: http://arxiv.org/pdf/0906.1387
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    Paper provided by arXiv.org in its series Papers with number 0906.1387.

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    Date of creation: Jun 2009
    Date of revision: May 2010
    Handle: RePEc:arx:papers:0906.1387

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    5. Vasiliki Plerou & Parameswaran Gopikrishnan & Xavier Gabaix & H. Eugene Stanley, 2001. "Quantifying Stock Price Response to Demand Fluctuations," Papers cond-mat/0106657, arXiv.org.
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    7. Jean-Philippe Bouchaud & Yuval Gefen & Marc Potters & Matthieu Wyart, 2003. "Fluctuations and response in financial markets: the subtle nature of `random' price changes," Science & Finance (CFM) working paper archive 0307332, Science & Finance, Capital Fund Management.
    8. R. Cont, 2001. "Empirical properties of asset returns: stylized facts and statistical issues," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 223-236.
    9. Szabolcs Mike & J. Doyne Farmer, 2007. "An empirical behavioral model of liquidity and volatility," Papers 0709.0159, arXiv.org.
    10. Zoltan Eisler & Janos Kertesz & Fabrizio Lillo, 2007. "The limit order book on different time scales," Papers 0705.4023, arXiv.org.
    11. Jean-Philippe Bouchaud & J. Doyne Farmer & Fabrizio Lillo, 2008. "How markets slowly digest changes in supply and demand," Papers 0809.0822, arXiv.org.
    12. Potters, Marc & Bouchaud, Jean-Philippe, 2003. "More statistical properties of order books and price impact," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 133-140.
    13. Raberto, Marco & Cincotti, Silvano & Focardi, Sergio M. & Marchesi, Michele, 2001. "Agent-based simulation of a financial market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 319-327.
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