The market nanostructure origin of asset price time reversal asymmetry

Marcus Cordi, Damien Challet and Serge Kassibrakis
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Marcus Cordi: MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec

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Abstract: We introduce a framework to infer lead-lag networks between the states of elements of complex systems, determined at different timescales. As such networks encode the causal structure of a system, infering lead-lag networks for many pairs of timescales provides a global picture of the mutual influence between timescales. We apply our method to two trader-resolved FX data sets and document strong and complex asymmetric influence of timescales on the structure of lead-lag networks. Expectedly, this asymmetry extends to trader activity: for institutional clients in our dataset, past activity on timescales longer than 3 hours is more correlated with future activity at shorter timescales than the opposite (Zumbach effect), while a reverse Zumbach effect is found for past timescales shorter than 3 hours; retail clients have a totally different, and much more intricate, structure of asymmetric timescale influence. The causality structures are clearly caused by markedly different behaviors of the two types of traders. Hence, market nano-structure, i.e., market dynamics at the individual trader level, provides an unprecedented insight into the causality structure of financial markets, which is much more complex than previously thought.

Date: 2018-12-28
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Published in SSRN : Social Science Research Network, 2018, ⟨10.2139/ssrn.3309170⟩

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Related works:
Journal Article: The market nanostructure origin of asset price time reversal asymmetry (2021)
Working Paper: The market nanostructure origin of asset price time reversal asymmetry (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01966419

DOI: 10.2139/ssrn.3309170

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