Price dynamics in an order-driven market with Bayesian learning
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Summary: In this paper, we have developed a model of limit order book with learning mechanism and investigated its price dynamics. In this model, continuous Bayesian learning is introduced to describe the dynamics of self-adjusting learning mechanism of agents, which can result in some important stylized facts of limit order markets. This study also provides some behavioral explanations for these well-known stylized facts that are commonly observed in the financial markets.
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Cited in
(18)- How does learning affect market liquidity? A simulation analysis of a double-auction financial market with portfolio traders
- Equilibrium pricing in an order book environment: case study for a spin model
- Learning, information processing and order submission in limit order markets
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