The self-exciting nature of the bid-ask spread dynamics

Ruihua Ruan, Emmanuel Bacry and Jean-Fran\c{c}ois Muzy

Papers from arXiv.org

Abstract: The bid-ask spread, which is defined by the difference between the best selling price and the best buying price in a Limit Order Book at a given time, is a crucial factor in the analysis of financial securities. In this study, we propose a "State-dependent Spread Hawkes model" (SDSH) that accounts for various spread jump sizes and incorporates the impact of the current spread state on its intensity functions. We apply this model to the high-frequency data from the Cac40 Euronext market and capture several statistical properties, such as the spread distributions, inter-event time distributions, and spread autocorrelation functions. We illustrate the ability of the SDSH model to forecast spread values at short-term horizons.

Date: 2023-03, Revised 2023-06
New Economics Papers: this item is included in nep-fmk and nep-mst
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