IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2610.05740.html

Latent Continuum of Regimes in Limit Order Book Dynamics

Author

Listed:
  • Anjali Thawait

Abstract

Market-regime models typically assume a finite set of discrete latent states. We examine whether high frequency limit-order-book dynamics exhibit distinct regime separation or apparent regimes result from discretising an underlying continuum, analysing deep limit-order book data for EURO STOXX 50 index futures across 987 clean trading days from 2022 to 2025 using 30, 45 and 60-second aggregation windows. Market states are represented by symmetric positive definite covariance matrices and analysed under Log-Euclidean and affine-invariant geometries; the resulting state cloud has an effective dimension of approximately 1.4. A causal anomaly layer filters statistical, calendar and rollover contamination, while label-free economic validation evaluates market-state separation independently of volatility-based proxy labels. A 17-method zoo spanning conventional and Riemannian representations, reinforced by full-cloud geometric certificates, consistently favours a continuum over a discrete regime structure. A dominant latent coordinate captures between 83.66% and 85.27% of variation in the covariance-state geometry and tracks VSTOXX without regime labels, remaining stable across years although its average level shifts with market conditions, indicating that conventional regimes are coarse quantisations. A divisive hierarchy spanning macro, macro-subregime, micro and micro-subregime tiers is evaluated using expanding-year walk-forward tests, with out-of-sample performance strongest at the macro tier while finer tiers fail to generalise; continuous fine-scale information nonetheless remains predictive, and its discretisation causes the performance loss. Forecasting performance peaks near ten minutes, reaching a maximum pooled R2_OOS of 0.7483. Overall, the latent stress coordinate defines a stable, low-dimensional geometric continuum that captures market stress and its predictive dynamics.

Suggested Citation

  • Anjali Thawait, 2026. "Latent Continuum of Regimes in Limit Order Book Dynamics," Papers 2610.05740, arXiv.org, revised Oct 2026.
  • Handle: RePEc:arx:papers:2610.05740
    as

    Download full text from publisher

    File URL: https://arxiv.org/pdf/2610.05740
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lawrence Hubert & Phipps Arabie, 1985. "Comparing partitions," Journal of Classification, Springer;The Classification Society, vol. 2(1), pages 193-218, December.
    2. Rama Cont & Arseniy Kukanov & Sasha Stoikov, 2014. "The Price Impact of Order Book Events," Journal of Financial Econometrics, Oxford University Press, vol. 12(1), pages 47-88.
    3. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    4. Selim Amrouni & Aymeric Moulin & Tucker Balch, 2022. "CTMSTOU driven markets: simulated environment for regime-awareness in trading policies," Papers 2202.00941, arXiv.org, revised Feb 2022.
    5. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    6. Alexa Orton & Tim Gebbie, 2024. "Representation Learning for Regime detection in Block Hierarchical Financial Markets," Papers 2410.22346, arXiv.org.
    7. Yushi Lin & Peng Yang, 2025. "Detecting Multilevel Manipulation from Limit Order Book via Cascaded Contrastive Representation Learning," Papers 2508.17086, arXiv.org, revised Oct 2025.
    8. Will Hammond, 2026. "Geometric Observables for Financial Regime Detection," Papers 2605.17117, arXiv.org, revised May 2026.
    9. Ole E. Barndorff‐Nielsen & Neil Shephard, 2002. "Econometric analysis of realized volatility and its use in estimating stochastic volatility models," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 64(2), pages 253-280, May.
    10. Ivan Letteri, 2025. "A Comparative Analysis of Statistical and Machine Learning Models for Outlier Detection in Bitcoin Limit Order Books," Papers 2507.14960, arXiv.org.
    11. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2003. "Modeling and Forecasting Realized Volatility," Econometrica, Econometric Society, vol. 71(2), pages 579-625, March.
    12. Patton, Andrew J., 2011. "Volatility forecast comparison using imperfect volatility proxies," Journal of Econometrics, Elsevier, vol. 160(1), pages 246-256, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Diaa Noureldin & Neil Shephard & Kevin Sheppard, 2012. "Multivariate high‐frequency‐based volatility (HEAVY) models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(6), pages 907-933, September.
    2. Ding, Yi & Engle, Robert & Li, Yingying & Zheng, Xinghua, 2025. "Multiplicative factor model for volatility," Journal of Econometrics, Elsevier, vol. 249(PB).
    3. Santos, Douglas G. & Candido, Osvaldo & Tófoli, Paula V., 2022. "Forecasting risk measures using intraday and overnight information," The North American Journal of Economics and Finance, Elsevier, vol. 60(C).
    4. Hiroyuki Kawakatsu, 2022. "Modeling Realized Variance with Realized Quarticity," Stats, MDPI, vol. 5(3), pages 1-25, September.
    5. McAleer, Michael & Medeiros, Marcelo C., 2008. "A multiple regime smooth transition Heterogeneous Autoregressive model for long memory and asymmetries," Journal of Econometrics, Elsevier, vol. 147(1), pages 104-119, November.
    6. Neil Shephard & Kevin Sheppard, 2010. "Realising the future: forecasting with high-frequency-based volatility (HEAVY) models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(2), pages 197-231.
    7. Akash Deep & Nicholas Appiah & Svetlozar T. Rachev, 2026. "Memory, Roughness, and Information Persistence in Financial Markets: A Structural Approach to Volatility Forecasting," Papers 2605.24285, arXiv.org.
    8. Andersen, Torben G. & Bollerslev, Tim & Huang, Xin, 2011. "A reduced form framework for modeling volatility of speculative prices based on realized variation measures," Journal of Econometrics, Elsevier, vol. 160(1), pages 176-189, January.
    9. Patton, Andrew J. & Sheppard, Kevin, 2009. "Optimal combinations of realised volatility estimators," International Journal of Forecasting, Elsevier, vol. 25(2), pages 218-238.
    10. Anders Eriksson & Daniel P. A. Preve & Jun Yu, 2019. "Forecasting Realized Volatility Using a Nonnegative Semiparametric Model," JRFM, MDPI, vol. 12(3), pages 1-23, August.
    11. Atak, Alev & Kapetanios, George, 2013. "A factor approach to realized volatility forecasting in the presence of finite jumps and cross-sectional correlation in pricing errors," Economics Letters, Elsevier, vol. 120(2), pages 224-228.
    12. Stefan Albers, 2025. "A New Star Is Born: Does the VIX1D Render Common Volatility Forecasting Models for the US Equity Market Obsolete?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 45(11), pages 2092-2108, November.
    13. Sharma, Prateek & Vipul,, 2016. "Forecasting stock market volatility using Realized GARCH model: International evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 222-230.
    14. Taylor, Nicholas, 2008. "Can idiosyncratic volatility help forecast stock market volatility?," International Journal of Forecasting, Elsevier, vol. 24(3), pages 462-479.
    15. Loïc Maréchal, 2021. "Do economic variables forecast commodity futures volatility?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(11), pages 1735-1774, November.
    16. Rehim Kılıç, 2025. "Linear and nonlinear econometric models against machine learning models: realized volatility prediction," Finance and Economics Discussion Series 2025-061, Board of Governors of the Federal Reserve System (U.S.).
    17. Douglas G. Santos & Flavio A. Ziegelmann, 2014. "Volatility Forecasting via MIDAS, HAR and their Combination: An Empirical Comparative Study for IBOVESPA," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 33(4), pages 284-299, July.
    18. Xinyu Song, 2026. "Network Realized GARCH--It\^o Models: Volatility Spillovers with High-Frequency Identification," Papers 2609.29515, arXiv.org.
    19. Yudong Wang & Zhiyuan Pan & Chongfeng Wu, 2017. "Time‐Varying Parameter Realized Volatility Models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 36(5), pages 566-580, August.
    20. Martens, Martin & van Dijk, Dick, 2007. "Measuring volatility with the realized range," Journal of Econometrics, Elsevier, vol. 138(1), pages 181-207, May.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2610.05740. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: https://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.