2009/04/06 by Zoltán Eisler, Eisler, Zoltan, Jean‐Philippe Bouchaud +3 · 3 citations
Decision Sciences · Economics, Econometrics and Finance · #Auction Theory and Applications #Complex Systems and Time Series Analysis #FOS: Economics and business #Financial Markets and Investment Strategies #Statistical Finance (q-fin.ST) #Trading and Market Microstructure (q-fin.TR)
paper · pdf · doi:10.48550/arxiv.0904.0900
openalex publication_date 2009/04/06 · openalex created_date 2022/10/04 · openalex updated_date 2026/07/28
While the long-ranged correlation of market orders and their impact on prices\nhas been relatively well studied in the literature, the corresponding studies\nof limit orders and cancellations are scarce. We provide here an empirical\nstudy of the cross-correlation between all these different events, and their\nrespective impact on future price changes. We define and extract from the data\nthe "bare" impact these events would have, if they were to happen in isolation.\nFor large tick stocks, we show that a model where the bare impact of all events\nis permanent and non-fluctuating is in good agreement with the data. For small\ntick stocks, however, bare impacts must contain a history dependent part,\nreflecting the internal fluctuations of the order book. We show that this\neffect can be accurately described by an autoregressive model on the past order\nflow. This framework allows us to decompose the impact of an event into three\nparts: an instantaneous jump component, the modification of the future rates of\nthe different events, and the modification of the future gaps behind the best\nquotes. We compare in detail the present formalism with the temporary impact\nmodel that was proposed earlier to describe the impact of market orders when\nother types of events are not observed. Finally, we extend the model to\ndescribe the dynamics of the bid-ask spread.\n