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Estimating the efficient price from the order flow: a Brownian Cox process approach

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  • Sylvain Delattre
  • Christian Y. Robert
  • Mathieu Rosenbaum
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    Abstract

    At the ultra high frequency level, the notion of price of an asset is very ambiguous. Indeed, many different prices can be defined (last traded price, best bid price, mid price,...). Thus, in practice, market participants face the problem of choosing a price when implementing their strategies. In this work, we propose a notion of efficient price which seems relevant in practice. Furthermore, we provide a statistical methodology enabling to estimate this price form the order flow.

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    File URL: http://arxiv.org/pdf/1301.3114
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1301.3114.

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    Date of creation: Jan 2013
    Date of revision: Apr 2013
    Handle: RePEc:arx:papers:1301.3114

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    Web page: http://arxiv.org/

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    1. J. Doyne Farmer & Paolo Patelli & Ilija I. Zovko, 2003. "The Predictive Power of Zero Intelligence in Financial Markets," Papers cond-mat/0309233, arXiv.org, revised Feb 2004.
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    Cited by:
    1. Valenzuela, Marcela & Zer, Ilknur & Fryzlewicz, Piotr & Rheinlander, Thorsten, 2014. "Relative Liquidity and Future Volatility," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2014-45, Board of Governors of the Federal Reserve System (U.S.).

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