Latency and liquidity provision in a limit order book

DOI10.1080/14697688.2017.1296177MaRDI QIDQ4555166zbMATHOpenAlexFDO

Authors Julius Bonart, Martin Gould

Publication date 19 November 2018

Published in Quantitative Finance (Search for Journal in Brave)

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

zbMATH Keywords

high-frequency tradingprice impactliquidity provisionlimit order books

Mathematics Subject Classification ID

Portfolio theory (91G10)

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.

Recommendations

• Latency and liquidity risk
• Strategic liquidity provision in limit order markets
• The Shadow Price of Latency: Improving Intraday Fill Ratios in Foreign Exchange Markets
• Resiliency of the limit order book
• Studies of the limit order book around large price changes

Cites work

• A stochastic model for order book dynamics
• Econometrics of financial high-frequency data
• Forecasting prices from level-I quotes in the presence of hidden liquidity
• Limit order books
• Order book approach to price impact
• Price dynamics in a Markovian limit order market
• Random walks, liquidity molasses and critical response in financial markets
• Simulating and analyzing order book data: the queue-reactive model
• Statistical theory of the continuous double auction

Cited in

(9)

• The Shadow Price of Latency: Improving Intraday Fill Ratios in Foreign Exchange Markets
• Market making with minimum resting times
• Liquidation in limit order books with controlled intensity
• An analysis of the supply curve for liquidity risk through book data
• The order book as a queueing system: average depth and influence of the size of limit orders
• Stock market trend prediction using a functional time series approach
• State-dependent Hawkes processes and their application to limit order book modelling
• What drives the sensitivity of limit order books to company announcement arrivals?
• Optimal liquidation in a level-I limit order book for large-tick stocks

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