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Order book model with herd behavior exhibiting long-range memory

Aleksejus Kononovicius and Julius Ruseckas

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Abstract: In this work, we propose an order book model with herd behavior. The proposed model is built upon two distinct approaches: a recent empirical study of the detailed order book records by Kanazawa et al. [Phys. Rev. Lett. 120, 138301] and financial herd behavior model. Combining these approaches allows us to propose a model that replicates the long-range memory of absolute returns and trading activity. We compare the statistical properties of the model against the empirical statistical properties of the Bitcoin exchange rates and New York stock exchange tickers. We also show that the fracture in the spectral density of the high-frequency absolute return time series might be related to the mechanism of convergence towards the equilibrium price.

New Economics Papers: this item is included in nep-mst and nep-pay
Date: 2018-09, Revised 2019-04
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Published in Physica A 525: 171-191 (2019)

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