Advanced Search
MyIDEAS: Login to save this paper or follow this series

How does the market react to your order flow?

Contents:

Author Info

  • Bence Toth
  • Zoltan Eisler
  • Fabrizio Lillo
  • Julien Kockelkoren
  • Jean-Philippe Bouchaud
  • J. Doyne Farmer

Abstract

We present an empirical study of the intertwined behaviour of members in a financial market. Exploiting a database where the broker that initiates an order book event can be identified, we decompose the correlation and response functions into contributions coming from different market participants and study how their behaviour is interconnected. We find evidence that (1) brokers are very heterogeneous in liquidity provision -- some are consistently liquidity providers while others are consistently liquidity takers. (2) The behaviour of brokers is strongly conditioned on the actions of {\it other} brokers. In contrast brokers are only weakly influenced by the impact of their own previous orders. (3) The total impact of market orders is the result of a subtle compensation between the same broker pushing the price in one direction and the liquidity provision of other brokers pushing it in the opposite direction. These results enforce the picture of market dynamics being the result of the competition between heterogeneous participants interacting to form a complicated market ecology.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://arxiv.org/pdf/1104.0587
File Function: Latest version
Download Restriction: no

Bibliographic Info

Paper provided by arXiv.org in its series Papers with number 1104.0587.

as in new window
Length:
Date of creation: Apr 2011
Date of revision: May 2012
Handle: RePEc:arx:papers:1104.0587

Contact details of provider:
Web page: http://arxiv.org/

Related research

Keywords:

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. J. -P. Bouchaud & J. Kockelkoren & M. Potters, 2004. "Random walks, liquidity molasses and critical response in financial markets," Papers cond-mat/0406224, arXiv.org, revised Jun 2004.
  2. 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.
  3. Lillo Fabrizio & Farmer J. Doyne, 2004. "The Long Memory of the Efficient Market," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, De Gruyter, vol. 8(3), pages 1-35, September.
  4. B. Tóth & F. Lillo & J. D. Farmer, 2010. "Segmentation algorithm for non-stationary compound Poisson processes," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, Springer, vol. 78(2), pages 235-243, November.
  5. Albert J. Menkveld, 2011. "High Frequency Trading and the New-Market Makers," Tinbergen Institute Discussion Papers, Tinbergen Institute 11-076/2/DSF21, Tinbergen Institute, revised 15 Aug 2011.
  6. J. Doyne Farmer & Austin Gerig & Fabrizio Lillo & Szabolcs Mike, 2006. "Market efficiency and the long-memory of supply and demand: is price impact variable and permanent or fixed and temporary?," Quantitative Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 6(2), pages 107-112.
  7. Jean-Philippe Bouchaud & J. Doyne Farmer & Fabrizio Lillo, 2008. "How markets slowly digest changes in supply and demand," Papers 0809.0822, arXiv.org.
  8. J. Doyne Farmer, 1999. "Market Force, Ecology, and Evolution," Computing in Economics and Finance 1999, Society for Computational Economics 651, Society for Computational Economics.
  9. Esteban Moro & Javier Vicente & Luis G. Moyano & Austin Gerig & J. Doyne Farmer & Gabriella Vaglica & Fabrizio Lillo & Rosario N. Mantegna, 2009. "Market impact and trading profile of large trading orders in stock markets," Papers 0908.0202, arXiv.org.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Zhong, Li-Xin & Xu, Wen-Juan & Ren, Fei & Shi, Yong-Dong, 2013. "Coupled effects of market impact and asymmetric sensitivity in financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 392(9), pages 2139-2149.
  2. Bence Toth & Imon Palit & Fabrizio Lillo & J. Doyne Farmer, 2011. "Why is order flow so persistent?," Papers 1108.1632, arXiv.org.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:arx:papers:1104.0587. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.