Fat tails and multi-scaling in a simple model of limit order markets

Andreas Krause

Physica A: Statistical Mechanics and its Applications, 2006, vol. 368, issue 1, 183-190

Abstract: We use a simple model where traders submit limit orders which are cleared in a double auction market. The limit prices are set by traders randomly, for buyers around a long-term trend and for sellers in a narrow band around their purchase price. Orders which are not filled within a specific time frame are randomly assigned a new limit price. In this framework we find evidence for the endogenous emergence of fat tails in the distribution of returns and multi-scaling whose origin is attributed to the market structure.

Keywords: Power-law; Multi-scaling; Limit order market; Zero-intelligence (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:368:y:2006:i:1:p:183-190

DOI: 10.1016/j.physa.2005.12.038

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