Do Stylised Facts of Order Book Markets Need Strategic Behaviour?
- 12 June 2007
- preprint
- Published by Elsevier in SSRN Electronic Journal
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
All Related Versions
This publication has 39 references indexed in Scilit:
- Adverse Selection and Competitive Market Making: Empirical Evidence from a Limit Order MarketThe Review of Financial Studies, 2001
- The costs and determinants of order aggressivenessJournal of Financial Economics, 2000
- Minimum Price Variations, Time Priority, and Quote DynamicsJournal of Financial Intermediation, 1999
- Price Dynamics in Limit Order MarketsThe Review of Financial Studies, 1998
- An Empirical Analysis of the Limit Order Book and the Order Flow in the Paris BourseThe Journal of Finance, 1995
- Securities Trading in the Absence of Dealers: Trades and Quotes on the Tokyo Stock ExchangeThe Review of Financial Studies, 1995
- An Integrated Model of Market and Limit OrdersJournal of Financial Intermediation, 1995
- Spreads, Depths, and the Impact of Earnings Information: An Intraday AnalysisThe Review of Financial Studies, 1993
- Measuring the Information Content of Stock TradesThe Journal of Finance, 1991
- Transaction Costs, Order Placement Strategy, and Existence of the Bid-Ask SpreadJournal of Political Economy, 1981