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Limit order market analysis and modelling: on an universal cause for over-diffusive prices

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  • Damien Challet
  • Robin Stinchcombe

Abstract

We briefly review data analysis of the Island order book, part of NASDAQ, which suggests a framework to which all limit order markets should comply. Using a simple exclusion particle model, we argue that short-time price over-diffusion in limit order markets is due to the non-equilibrium of order placement, cancellation and execution rates, which is an inherent feature of real limit order markets.

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  • Damien Challet & Robin Stinchcombe, 2002. "Limit order market analysis and modelling: on an universal cause for over-diffusive prices," Papers cond-mat/0211082, arXiv.org.
    • Handle: RePEc:arx:papers:cond-mat/0211082
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    1. N/A, 1999. "Abstracts," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 8(2), pages 239-258, September.
    2. Bollerslev, Tim & Domowitz, Ian & Wang, Jianxin, 1997. "Order flow and the bid-ask spread: An empirical probability model of screen-based trading," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1471-1491, June.
    3. R.K. Prusty & S. Pal, 1999. "Abstracts," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 8(1), pages 113-134, March.
    4. Gençay, Ramazan & Dacorogna, Michel & Muller, Ulrich A. & Pictet, Olivier & Olsen, Richard, 2001. "An Introduction to High-Frequency Finance," Elsevier Monographs, Elsevier, edition 1, number 9780122796715.
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    Cited by:

    1. Jorge V. P鲥z-Rodr z & Beatriz G. L. Valcarcel, 2012. "Do product innovation and news about the R&D process produce large price changes and overreaction? The case of pharmaceutical stock prices," Applied Economics, Taylor & Francis Journals, vol. 44(17), pages 2217-2229, June.
    2. Yoshimura, Yushi & Okuda, Hiroshi & Chen, Yu, 2020. "A mathematical formulation of order cancellation for the agent-based modelling of financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 538(C).
    3. Adam Zawadowski & Gyorgy Andor & Janos Kertesz, 2006. "Short-term market reaction after extreme price changes of liquid stocks," Quantitative Finance, Taylor & Francis Journals, vol. 6(4), pages 283-295.

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