Order Aggressiveness and Order Book Dynamics
AbstractIn this paper, we study the determinants of order aggressiveness and traders' order submission strategy in an open limit order book market. Using order book data from the Australian Stock Exchange, we model traders' aggressiveness in market trading, limit order trading as well as in order cancellations on both sides of the market using a six-dimensional autoregressive intensity model. The information revealed by the open order book plays an important role in explaining the degree of order aggressiveness in the individual processes. Moreover, evidence for significant dynamic interdependencies between the individual processes confirms the usefulness of the multivariate setting. Overall, our empirical results confirm theoretical findings on limit order book trading and show that a trader's decision of when and which order to submit is significantly influenced by the queued volume, the market depth, the inside spread, recent volatility, as well as recent changes in both the order flow and the price.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics. Finance Research Unit in its series FRU Working Papers with number 2005/04.
Length: 21 pages
Date of creation: Dec 2004
Date of revision:
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More information through EDIRC
order aggressiveness; multivariate intensity; open limit order book; order book dynamics;
Other versions of this item:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-14 (All new papers)
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