 How does the market react to your order flow?B. Tóth, Z. Eisler, F. Lillo, J. Kockelkoren, J.-P. Bouchaud and J. Farmer Quantitative Finance, 2012, vol. 12, issue 7, 1015-1024 Abstract: We present an empirical study of the intertwined behaviour of members in a financial market. Exploiting a database where the broker that initiates an order book event can be identified, we decompose the correlation and response functions into contributions coming from different market participants and study how their behaviour is interconnected. We find evidence for the following. (1) Brokers are very heterogeneous in liquidity provision—some appear to be primarily liquidity providers while others are primarily liquidity takers. (2) The behaviour of brokers is strongly conditioned on the actions of other brokers. In contrast, brokers are only weakly influenced by the impact of their own previous orders. (3) The total impact of market orders is the result of a subtle compensation between the same broker pushing the price in one direction and the liquidity provision of other brokers pushing it in the opposite direction. These results enforce the picture of market dynamics being the result of the competition between heterogeneous participants, interacting to form a complex market ecology. Date: 2012 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:12:y:2012:i:7:p:1015-1024 Ordering information: This journal article can be ordered from DOI: 10.1080/14697688.2012.690886 Access Statistics for this article Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral More articles in Quantitative Finance from Taylor & Francis Journals |
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