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The market nanostructure origin of asset price time reversal asymmetry

Author

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  • Marcus Cordi

    (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec)

  • Damien Challet

    (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec)

  • Serge Kassibrakis

Abstract

We introduce a framework to infer lead-lag networks between the states of elements of complex systems, determined at different timescales. As such networks encode the causal structure of a system, infering lead-lag networks for many pairs of timescales provides a global picture of the mutual influence between timescales. We apply our method to two trader-resolved FX data sets and document strong and complex asymmetric influence of timescales on the structure of lead-lag networks. Expectedly, this asymmetry extends to trader activity: for institutional clients in our dataset, past activity on timescales longer than 3 hours is more correlated with future activity at shorter timescales than the opposite (Zumbach effect), while a reverse Zumbach effect is found for past timescales shorter than 3 hours; retail clients have a totally different, and much more intricate, structure of asymmetric timescale influence. The causality structures are clearly caused by markedly different behaviors of the two types of traders. Hence, market nano-structure, i.e., market dynamics at the individual trader level, provides an unprecedented insight into the causality structure of financial markets, which is much more complex than previously thought.

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  • Marcus Cordi & Damien Challet & Serge Kassibrakis, 2018. "The market nanostructure origin of asset price time reversal asymmetry," Post-Print hal-01966419, HAL.
    • Handle: RePEc:hal:journl:hal-01966419
    DOI: 10.2139/ssrn.3309170
    Note: View the original document on HAL open archive server: https://hal.science/hal-01966419
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    Cited by:

    1. Carlo Campajola & Fabrizio Lillo & Daniele Tantari, 2019. "Unveiling the relation between herding and liquidity with trader lead-lag networks," Papers 1909.10807, arXiv.org, revised Mar 2020.
    2. Artem Stopochkin & Inessa Sytnik & Janusz Wielki & Nataliia Zemlianska, 2021. "Methodology for Building Trader's Investment Strategy Based on Assessment of the Market Value of the Company," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 913-935.

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