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Large large-trader activity weakens the long memory of limit order markets

Kevin Primicerio and Damien Challet ()

Papers from arXiv.org

Abstract: Using more than 6.7 billions of trades, we explore how the tick-by-tick dynamics of limit order books depends on the aggregate actions of large investment funds on a much larger (quarterly) timescale. In particular, we find that the well-established long memory of market order signs is markedly weaker when large investment funds trade either in a directional way and even weaker when their aggregate participation ratio is large. Conversely, we investigate to what respect a weaker memory of market order signs predicts that an asset is being actively traded by large funds. Theoretical arguments suggest two simple mechanisms that contribute to the observed effect: a larger number of active meta-orders and a modification of the distribution of size of meta-orders. Empirical evidence suggests that the number of active meta-orders is the most important contributor to the loss of market order sign memory.

New Economics Papers: this item is included in nep-mst
Date: 2018-03
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http://arxiv.org/pdf/1803.08390 Latest version (application/pdf)

Related works:
Working Paper: Large large-trader activity weakens the long memory of limit order markets (2019)
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