Studies of the limit order book around large price changes

Bence Toth, Janos Kertesz and J. Farmer

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Abstract: We study the dynamics of the limit order book of liquid stocks after experiencing large intra-day price changes. In the data we find large variations in several microscopical measures, e.g., the volatility the bid-ask spread, the bid-ask imbalance, the number of queuing limit orders, the activity (number and volume) of limit orders placed and canceled, etc. The relaxation of the quantities is generally very slow that can be described by a power law of exponent $\approx0.4$. We introduce a numerical model in order to understand the empirical results better. We find that with a zero intelligence deposition model of the order flow the empirical results can be reproduced qualitatively. This suggests that the slow relaxations might not be results of agents' strategic behaviour. Studying the difference between the exponents found empirically and numerically helps us to better identify the role of strategic behaviour in the phenomena.

Date: 2009-01, Revised 2009-06
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (10)

Published in Eur. Phys. J. B 71, 499-510 (2009)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:0901.0495

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