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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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    Cited by:

    1. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.

    More about this item

    Keywords

    Financial Markets; Electronic Markets; Algorithmic Trading; Order Entry; Equity Trading; Information Theory; Entropy Measure;
    All these keywords.

    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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