How does the market react to your order flow?

Fabrizio Lillo, J. Doyne Farmer, Jean-Philippe Bouchaud, Tóth, Fabrizio Lillo, Kockelkoren, Eisler

Risultato della ricerca: Articlepeer review

10 Citazioni (Scopus)

Abstract

We present an empirical study of the intertwined behaviour of members in a financial market. Exploiting a database where the broker that initiates an order book event can be identified, we decompose the correlation and response functions into contributions coming from different market participants and study how their behaviour is interconnected. We find evidence for the following. (1) Brokers are very heterogeneous in liquidity provision—some appear to be primarily liquidity providers while others are primarily liquidity takers. (2) The behaviour of brokers is strongly conditioned on the actions of other brokers. In contrast, brokers are only weakly influenced by the impact of their own previous orders. (3) The total impact of market orders is the result of a subtle compensation between the same broker pushing the price in one direction and the liquidity provision of other brokers pushing it in the opposite direction. These results enforce the picture of market dynamics being the result of the competition between heterogeneous participants, interacting to form a complex market ecology.
Lingua originaleEnglish
pagine (da-a)1015-1024
Numero di pagine10
RivistaQuantitative Finance
Volume12
Stato di pubblicazionePublished - 2012

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics, Econometrics and Finance(all)

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