Learning and Information Dissemination in Limit Order Markets
What can traders learn and how does learning affect the market? When information is asymmetric, short-lived, and uninformed traders learn, we present an artificial limit order market model to examine the effect of learning, information value, and order aggressiveness on information dissemination efficiency, bid-ask spread, order submission, and order profit of traders. We find that learning helps the uninformed traders to acquire private information more effectively and hence improves market information dissemination. Also the informed traders in general consume liquidity while the uninformed traders mainly supply liquidity. More interestingly, due to the learning and short-lived information, the bid-ask spread and its volatility are positively related to the probability of informed trading. The results help us to understand the behavior of uninformed traders and provide substantial insight and intuition into the trading process.
|Date of creation:||01 Jun 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +61 2 9514 7777
Fax: +61 2 9514 7711
Web page: http://www.qfrc.uts.edu.au/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Giulia Iori & Carl Chiarella, 2002. "A simple microstructure model of double auction markets," Computing in Economics and Finance 2002 44, Society for Computational Economics.
- Glosten, Lawrence R, 1994. " Is the Electronic Open Limit Order Book Inevitable?," Journal of Finance, American Finance Association, vol. 49(4), pages 1127-61, September.
- Lux, Thomas, 1995. "Herd Behaviour, Bubbles and Crashes," Economic Journal, Royal Economic Society, vol. 105(431), pages 881-96, July.
- Arifovic, Jasmina, 1994. "Genetic algorithm learning and the cobweb model," Journal of Economic Dynamics and Control, Elsevier, vol. 18(1), pages 3-28, January.
- Carl Chiarella & Giulia Iori & Josep Perello, 2007.
"The Impact of Heterogeneous Trading Rules on the Limit Order Book and Order Flows,"
- Chiarella, Carl & Iori, Giulia, 2009. "The impact of heterogeneous trading rules on the limit order book and order flows," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 525-537.
- Carl Chiarella & Giulia Iori, 2005. "The Impact of Heterogeneous Trading Rules on the Limit Order Book and Order Flows," Research Paper Series 152, Quantitative Finance Research Centre, University of Technology, Sydney.
- Chiarella, C. & Iori, G. & Perello, J., 2008. "The Impact of Heterogeneous Trading Rules on the Limit Order Book and Order Flows," Working Papers 08/04, Department of Economics, City University London.
- Marco Licalzi & Paolo Pellizzari, 2003.
"Fundamentalists clashing over the book: a study of order-driven stock markets,"
Taylor & Francis Journals, vol. 3(6), pages 470-480.
- Marco LiCalzi & Paolo Pellizzari, 2002. "Fundamentalists Clashing over the Book: A Study of Order-Driven Stock Markets," Computational Economics 0207001, EconWPA, revised 04 Mar 2003.
- Ronald L. Goettler & Christine A. Parlour & Uday Rajan, 2005. "Equilibrium in a Dynamic Limit Order Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2149-2192, October.
- Ahn, Hee-Joon & Cai, Jun & Hamao, Yasushi & Ho, Richard Y. K., 2002. "The components of the bid-ask spread in a limit-order market: evidence from the Tokyo Stock Exchange," Journal of Empirical Finance, Elsevier, vol. 9(4), pages 399-430, November.
- Brock, William A. & Hommes, Cars H., 1998.
"Heterogeneous beliefs and routes to chaos in a simple asset pricing model,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 22(8-9), pages 1235-1274, August.
- Carl Chiarella & Roberto Dieci & Xue-Zhong He, 2008. "Heterogeneity, Market Mechanisms, and Asset Price Dynamics," Research Paper Series 231, Quantitative Finance Research Centre, University of Technology, Sydney.
- Bloomfield, Robert & O'Hara, Maureen & Saar, Gideon, 2005. "The "make or take" decision in an electronic market: Evidence on the evolution of liquidity," Journal of Financial Economics, Elsevier, vol. 75(1), pages 165-199, January.
- J. Doyne Farmer & Paolo Patelli & Ilija I. Zovko, 2003. "The Predictive Power of Zero Intelligence in Financial Markets," Papers cond-mat/0309233, arXiv.org, revised Feb 2004.
- Arifovic, Jasmina, 1996. "The Behavior of the Exchange Rate in the Genetic Algorithm and Experimental Economies," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 510-41, June.
- Glosten, Lawrence R. & Milgrom, Paul R., 1985.
"Bid, ask and transaction prices in a specialist market with heterogeneously informed traders,"
Journal of Financial Economics,
Elsevier, vol. 14(1), pages 71-100, March.
- Lawrence R. Glosten & Paul R. Milgrom, 1983. "Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders," Discussion Papers 570, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Kluger, Brian D. & McBride, Mark E., 2011. "Intraday trading patterns in an intelligent autonomous agent-based stock market," Journal of Economic Behavior & Organization, Elsevier, vol. 79(3), pages 226-245, August.
- Javier Gil-Bazo & David Moreno & Mikel Tapia, 2005. "Price Dynamics, Informational Efficiency And Wealth Distribution In Continuous Double Auction Markets," Business Economics Working Papers wb057819, Universidad Carlos III, Departamento de Economía de la Empresa.
- Hollifield, Burton & Miller, Robert A. & Sandås, Patrik & Slive, Joshua, 2004.
"Estimating the Gains From Trade in Limit Order Markets,"
CEPR Discussion Papers
4432, C.E.P.R. Discussion Papers.
- Burton Hollifield & Robert A. Miller & Patrik Sand�S & Joshua Slive, 2006. "Estimating the Gains from Trade in Limit-Order Markets," Journal of Finance, American Finance Association, vol. 61(6), pages 2753-2804, December.
- Anufriev, M. & Arifovic, J. & Ledyard, D. & Panchenko, V., 2010.
"Efficiency of Continuous Double Auctions under Individual Evolutionary Learning with Full or Limited Information,"
CeNDEF Working Papers
10-01, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Mikhail Anufriev & Jasmina Arifovic & John Ledyard & Valentyn Panchenko, 2013. "Efficiency of continuous double auctions under individual evolutionary learning with full or limited information," Journal of Evolutionary Economics, Springer, vol. 23(3), pages 539-573, July.
- Routledge, Bryan R., 2001. "Genetic Algorithm Learning To Choose And Use Information," Macroeconomic Dynamics, Cambridge University Press, vol. 5(02), pages 303-325, April.
- Thomas H. Noe & Michael J. Rebello & Jun Wang, 2006.
"The Evolution of Security Designs,"
Journal of Finance,
American Finance Association, vol. 61(5), pages 2103-2135, October.
- Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
- Goettler, Ronald L. & Parlour, Christine A. & Rajan, Uday, 2009. "Informed traders and limit order markets," Journal of Financial Economics, Elsevier, vol. 93(1), pages 67-87, July.
- Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
- Anufriev, M. & Panchenko, V., 2007.
"Asset Prices, Traders' Behavior, and Market Design,"
CeNDEF Working Papers
07-14, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Easley, David & O'Hara, Maureen, 1987. "Price, trade size, and information in securities markets," Journal of Financial Economics, Elsevier, vol. 19(1), pages 69-90, September.
- Menkhoff, Lukas & Osler, Carol L. & Schmeling, Maik, 2010.
"Limit-order submission strategies under asymmetric information,"
Journal of Banking & Finance,
Elsevier, vol. 34(11), pages 2665-2677, November.
- Lukas Menkhoff & Carol L. Osler & Maik Schmeling, 2010. "Limit-Order Submission Strategies under Asymmetric Information," CESifo Working Paper Series 3054, CESifo Group Munich.
- Carl Chiarella, 1992. "The Dynamics of Speculative Behaviour," Working Paper Series 13, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
- Brockman, Paul & Chung, Dennis Y, 1999. "Bid-Ask Spread Components in an Order-Driven Environment," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(2), pages 227-46, Summer.
When requesting a correction, please mention this item's handle: RePEc:uts:rpaper:333. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Duncan Ford)
If references are entirely missing, you can add them using this form.