Stylized facts of price gaps in limit order books

DOI10.1016/J.CHAOS.2015.10.031zbMATH Open1415.91262OpenAlexW2210724953MaRDI QIDQ508284FDOQ508284

Authors Gaofeng Gu, Xiong Xiong, Yong-Jie Zhang, Wei-Xing Zhou, Wei Chen, Wei Zhang

Publication date 10 February 2017

Published in Chaos, Solitons and Fractals (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1405.1247

zbMATH Keywords

econophysicslimit order bookliquiditystylized factsbuy-sell asymmetryprice gap

Mathematics Subject Classification ID

Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Applications of statistics to actuarial sciences and financial mathematics (62P05) Portfolio theory (91G10)

Abstract: Price gap, defined as the logarithmic price difference between the first two occupied price levels on the same side of a limit order book (LOB), is a key determinant of market depth, which is one of the dimensions of liquidity. However, the properties of price gaps have not been thoroughly studied due to the less availability of ultrahigh frequency data. In the paper, we rebuild the LOB dynamics based on the order flow data of 26 A-share stocks traded on the Shenzhen Stock Exchange in 2003. Three key empirical statistical properties of price gaps are investigated. We find that the distribution of price gaps has a power-law tail for all stocks with an average tail exponent close to 3.2. Applying modern statistical methods, we confirm that the gap time series are long-range correlated and possess multifractal nature. These three features vary from stock to stock and are not universal. Furthermore, we also unveil buy-sell asymmetry phenomena in the properties of price gaps on the buy and sell sides of the LOBs for individual stocks. These findings deepen our understanding of the dynamics of liquidity of common stocks and can be used to calibrate agent-based computational financial models.

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Cited in

(7)

• The price impact of order book events: market orders, limit orders and cancellations
• Time-dependent relations between gaps and returns in a bitcoin order book
• Studies of the limit order book around large price changes
• Interacting gaps model, dynamics of order book, and stock-market fluctuations
• Information dimension of Galton board
• Complexity in quantitative finance and economics
• Limit-order book resiliency after effective market orders: spread, depth and intensity

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• plfit

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