Do Stylised Facts of Order Book Markets Need Strategic Behaviour?

Daniel Ladley () and Klaus Schenk-Hoppé

No 07-20, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper studies the role of strategy and the order book market mechanism in price dynamics and the order flow behaviour. To this end we analyse a zero-intelligence agent model of a dynamic limit order market. Stylised facts of limit order markets are shown to be influenced and, in some cases, governed by the market mechanism rather than strategic interaction. Positive correlation in order types, for instance, is the result of the market architecture, and price movements may be predicted in the short term from analysing the state of the order book. In contrast the absolute probabilities of order submission highlight the contribution of strategic behaviour.

Keywords: Limit order book; stylised facts; order behaviour; price dynamics (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2007-06
New Economics Papers: this item is included in nep-cse and nep-mst
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Do stylised facts of order book markets need strategic behaviour? (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0720

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