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 language | English (US) |
|---|---|
| Pages (from-to) | 234-246 |
| Number of pages | 13 |
| Journal | Physica A: Statistical Mechanics and its Applications |
| Volume | 299 |
| Issue number | 1-2 |
| DOIs | |
| State | Published - Oct 1 2001 |
| Externally published | Yes |
| Event | Application of Physics in Economic Modelling (NATO ARW) - Prague, Czech Republic Duration: Feb 8 2001 → Feb 10 2001 |
Keywords
- High-frequency data
- Limit order
- Order book
- Price fluctuation
ASJC Scopus subject areas
- Statistics and Probability
- Condensed Matter Physics