Large large-trader activity weakens the long memory of limit order markets

Kevin Primicerio and Damien Challet
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Kevin Primicerio: MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec

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Abstract: 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.

Date: 2019-08-18
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Published in Market microstructure and liquidity, 2019, 04 (01n02), pp.1950004. ⟨10.1142/S2382626619500047⟩

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Working Paper: Large large-trader activity weakens the long memory of limit order markets (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02021772

DOI: 10.1142/S2382626619500047

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