Price fluctuations from the order book perspective - Empirical facts and a simple model

Sergei Maslov, Mark Mills

Research output: Contribution to journalConference articlepeer-review

Abstract

Statistical properties of an order book and the effect they have on price dynamics were studied using the high-frequency NASDAQ Level II data. It was observed that the size distribution of marketable orders (transaction sizes) has power law tails with an exponent 1+μmarket=2.4±0.1. The distribution of limit order (or quote) sizes was found to be consistent with a power law with an exponent close to 2. A somewhat better fit to this distribution was obtained by using a log-normal distribution which has an effective power law exponent equal to 2 in the middle of the observed range. The depth of the order book measured as a price impact of a hypothetical large market order was observed to be a non-linear function of its size. A large imbalance in the number of limit orders placed at bid and ask sides of the book was shown to lead to a predictable short term price change, which is in accord with the law of supply and demand.

Original languageEnglish (US)
Pages (from-to)234-246
Number of pages13
JournalPhysica A: Statistical Mechanics and its Applications
Volume299
Issue number1-2
DOIs
StatePublished - Oct 1 2001
Externally publishedYes
EventApplication of Physics in Economic Modelling (NATO ARW) - Prague, Czech Republic
Duration: Feb 8 2001Feb 10 2001

Keywords

  • High-frequency data
  • Limit order
  • Order book
  • Price fluctuation

ASJC Scopus subject areas

  • Statistics and Probability
  • Condensed Matter Physics

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