Price fluctuations from the order book perspective—empirical facts and a simple model

Sergei Maslov and Mark Mills

Physica A: Statistical Mechanics and its Applications, 2001, vol. 299, issue 1, 234-246

Abstract: Statistical properties of an order book and the effect they have on price dynamics were studied using the high-frequency NASDAQ Level II data. It was observed that the size distribution of marketable orders (transaction sizes) has power law tails with an exponent 1+μmarket=2.4±0.1. The distribution of limit order (or quote) sizes was found to be consistent with a power law with an exponent close to 2. A somewhat better fit to this distribution was obtained by using a log-normal distribution which has an effective power law exponent equal to 2 in the middle of the observed range. The depth of the order book measured as a price impact of a hypothetical large market order was observed to be a non-linear function of its size. A large imbalance in the number of limit orders placed at bid and ask sides of the book was shown to lead to a predictable short term price change, which is in accord with the law of supply and demand.

Keywords: Limit order; Order book; Price fluctuations; High-frequency data (search for similar items in EconPapers)
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (58)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437101003016
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:299:y:2001:i:1:p:234-246

DOI: 10.1016/S0378-4371(01)00301-6

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().