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Large large-trader activity weakens the long memory of limit order markets

Author

Listed:
  • Kevin Primicerio

    (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec)

  • Damien Challet

    (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec, MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay)

Abstract

Using more than 6.7 billions of trades, we explore how the tick-by-tick dynamics of limit order books depends on the aggregate actions of large investment funds on a much larger (quarterly) timescale. In particular, we find that the well-established long memory of market order signs is markedly weaker when large investment funds trade either in a directional way and even weaker when their aggregate participation ratio is large. Conversely, we investigate to what respect a weaker memory of market order signs predicts that an asset is being actively traded by large funds. Theoretical arguments suggest two simple mechanisms that contribute to the observed effect: a larger number of active meta-orders and a modification of the distribution of size of meta-orders. Empirical evidence suggests that the number of active meta-orders is the most important contributor to the loss of market order sign memory.

Suggested Citation

  • Kevin Primicerio & Damien Challet, 2019. "Large large-trader activity weakens the long memory of limit order markets," Post-Print hal-02021772, HAL.
    • Handle: RePEc:hal:journl:hal-02021772
    DOI: 10.1142/S2382626619500047
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    References listed on IDEAS

    as
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