Large large-trader activity weakens the long memory of limit order markets
Kevin Primicerio and
Damien Challet ()
Papers from arXiv.org
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.
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Working Paper: Large large-trader activity weakens the long memory of limit order markets (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1803.08390
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