Patience and Impatience of Stock Traders
AbstractI derive asymptotic distribution of the bids/offers as a function of proportion between patient and impatient traders using my modification of Foucault, Kadan and Kandel dynamic Limit Order Book (LOB) model. Distribution of patient and impatient traders asymptotically obeys rather simple PDE, which admits numerical solutions. My modification of LOB model allows stylized but sufficiently realistic representation of the trading markets. In particular, dynamic LOB allows simulating the distribution of execution times and spreads from high-frequency quotes. Significant analytic progress is made towards future empirical study of trading as competition for immediacy of execution between traders. The results are qualitatively compared with empirical volumeat- price distribution of liquid stocks.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1204.1410.
Date of creation: Apr 2012
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-17 (All new papers)
- NEP-FMK-2012-04-17 (Financial Markets)
- NEP-MST-2012-04-17 (Market Microstructure)
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- Thierry Foucault & Ohad Kadan & Eugene Kandel, 2003.
"Limit Order Book as a Market for Liquidity,"
Discussion Paper Series
dp321, The Center for the Study of Rationality, Hebrew University, Jerusalem.
- Foucault, Thierry & Kadan, Ohad & Kandel, Eugene, 2001. "Limit Order Book as a Market for Liquidity," CEPR Discussion Papers 2889, C.E.P.R. Discussion Papers.
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- de Jong,Frank & Rindi,Barbara, 2009.
"The Microstructure of Financial Markets,"
Cambridge University Press, number 9780521867849, December.
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