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Analysis of binary trading patterns in Xetra

Author

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  • Maurer, Kai-Oliver
  • Schäfer, Carsten

Abstract

This paper proposes the Shannon entropy as an appropriate one-dimensional measure of behavioural trading patterns in financial markets. The concept is applied to the illustrative example of algorithmic vs. non-algorithmic trading and empirical data from Deutsche Börse's electronic cash equity trading system, Xetra. The results reveal pronounced differences between algorithmic and non-algorithmic traders. In particular, trading patterns of algorithmic traders exhibit a medium degree of regularity while non-algorithmic trading tends towards either very regular or very irregular trading patterns.

Suggested Citation

  • Maurer, Kai-Oliver & Schäfer, Carsten, 2010. "Analysis of binary trading patterns in Xetra," CFS Working Paper Series 2010/12, Center for Financial Studies (CFS).
  • Handle: RePEc:zbw:cfswop:201012
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    File URL: https://www.econstor.eu/bitstream/10419/43245/1/630565058.pdf
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    More about this item

    Keywords

    Financial Markets; Electronic Markets; Algorithmic Trading; Order Entry; Equity Trading; Information Theory; Entropy Measure;

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • D0 - Microeconomics - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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