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The price impact of order book events: market orders, limit orders and cancellations


  • Zoltan Eisler
  • Jean-Philippe Bouchaud
  • Julien Kockelkoren


While the long-ranged correlation of market orders and their impact on prices has been relatively well studied in the literature, the corresponding studies of limit orders and cancellations are scarce. We provide here an empirical study of the cross-correlation between all these different events, and their respective impact on future price changes. We define and extract from the data the "bare" impact these events would have, if they were to happen in isolation. For large tick stocks, we show that a model where the bare impact of all events is permanent and non-fluctuating is in good agreement with the data. For small tick stocks, however, bare impacts must contain a history dependent part, reflecting the internal fluctuations of the order book. We show that this effect can be accurately described by an autoregressive model on the past order flow. This framework allows us to decompose the impact of an event into three parts: an instantaneous jump component, the modification of the future rates of the different events, and the modification of the future gaps behind the best quotes. We compare in detail the present formalism with the temporary impact model that was proposed earlier to describe the impact of market orders when other types of events are not observed. Finally, we extend the model to describe the dynamics of the bid-ask spread.

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  • Zoltan Eisler & Jean-Philippe Bouchaud & Julien Kockelkoren, 2009. "The price impact of order book events: market orders, limit orders and cancellations," Papers 0904.0900,, revised Sep 2010.
  • Handle: RePEc:arx:papers:0904.0900

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    1. Mark Craddock & David Heath & Eckhard Platen, 1999. "Numerical Inversion of Laplace Transforms: A Survey of Techniques with Applications to Derivative Pricing," Research Paper Series 27, Quantitative Finance Research Centre, University of Technology, Sydney.
    2. Panjer, Harry H. & Willmot, Gordon E., 1986. "Computational aspects of recursive evaluation of compound distributions," Insurance: Mathematics and Economics, Elsevier, vol. 5(1), pages 113-116, January.
    3. S. Illeris & G. Akehurst, 2002. "Introduction," The Service Industries Journal, Taylor & Francis Journals, vol. 22(1), pages 1-3, January.
    4. Shephard, N.G., 1991. "From Characteristic Function to Distribution Function: A Simple Framework for the Theory," Econometric Theory, Cambridge University Press, vol. 7(04), pages 519-529, December.
    5. GrĂ¼bel, Rudolf & Hermesmeier, Renate, 1999. "Computation of Compound Distributions I: Aliasing Errors and Exponential Tilting," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 29(02), pages 197-214, November.
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