Latency and liquidity provision in a limit order book

DOI10.1080/14697688.2017.1296177zbMATH Open1402.91663arXiv1511.04116OpenAlexW3124900943MaRDI QIDQ4555166FDOQ4555166

Julius Bonart, Martin Gould

Publication date: 19 November 2018

Published in: Quantitative Finance (Search for Journal in Brave)

Abstract: We use a recent, high-quality data set from Nasdaq to perform an empirical analysis of order flow in a limit order book (LOB) before and after the arrival of a market order. For each of the stocks that we study, we identify a sequence of distinct phases across which the net flow of orders differs considerably. We note some of our results are consist with the widely reported phenomenon of stimulated refill, but that others are not. We therefore propose alternative mechanical and strategic motivations for the behaviour that we observe. Based on our findings, we argue that strategic liquidity providers consider both adverse selection and expected waiting costs when deciding how to act.

Full work available at URL: https://arxiv.org/abs/1511.04116

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zbMATH Keywords

high-frequency tradingprice impactliquidity provisionlimit order books

Mathematics Subject Classification ID

Portfolio theory (91G10)

Cites Work

• Price dynamics in a Markovian limit order market
• A Stochastic Model for Order Book Dynamics
• Simulating and Analyzing Order Book Data: The Queue-Reactive Model
• Order book approach to price impact
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• Limit order books
• Random walks, liquidity molasses and critical response in financial markets
• Statistical theory of the continuous double auction
• Forecasting prices from level-I quotes in the presence of hidden liquidity

Cited In (7)

• Optimal Liquidation in a Level-I Limit Order Book for Large-Tick Stocks
• The order book as a queueing system: average depth and influence of the size of limit orders
• State-dependent Hawkes processes and their application to limit order book modelling
• An analysis of the supply curve for liquidity risk through book data
• Liquidation in limit order books with controlled intensity
• Stock market trend prediction using a functional time series approach
• The Shadow Price of Latency: Improving Intraday Fill Ratios in Foreign Exchange Markets

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