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Multi-Level Order-Flow Imbalance in a Limit Order Book

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  • Ke Xu
  • Martin D. Gould
  • Sam D. Howison

Abstract

We study the multi-level order-flow imbalance (MLOFI), which is a vector quantity that measures the net flow of buy and sell orders at different price levels in a limit order book (LOB). Using a recent, high-quality data set for 6 liquid stocks on Nasdaq, we fit a simple, linear relationship between MLOFI and the contemporaneous change in mid-price. For all 6 stocks that we study, we find that the out-of-sample goodness-of-fit of the relationship improves with each additional price level that we include in the MLOFI vector. Our results underline how order-flow activity deep into the LOB can influence the price-formation process.

Suggested Citation

  • Ke Xu & Martin D. Gould & Sam D. Howison, 2019. "Multi-Level Order-Flow Imbalance in a Limit Order Book," Papers 1907.06230, arXiv.org, revised Oct 2019.
    • Handle: RePEc:arx:papers:1907.06230
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    References listed on IDEAS

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    3. Martin D. Gould & Mason A. Porter & Stacy Williams & Mark McDonald & Daniel J. Fenn & Sam D. Howison, 2010. "Limit Order Books," Papers 1012.0349, arXiv.org, revised Apr 2013.
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    Cited by:

    1. Zhen Zhang & Dave Cliff, 2020. "Market Impact in Trader-Agents: Adding Multi-Level Order-Flow Imbalance-Sensitivity to Automated Trading Systems," Papers 2012.12555, arXiv.org.
    2. Xuan Tao & Andrew Day & Lan Ling & Samuel Drapeau, 2020. "On Detecting Spoofing Strategies in High Frequency Trading," Papers 2009.14818, arXiv.org, revised Dec 2020.
    3. Jonathan Sadighian, 2019. "Deep Reinforcement Learning in Cryptocurrency Market Making," Papers 1911.08647, arXiv.org.

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