Empirical shape function of limit-order books in the Chinese stock market

Abstract

We have analyzed the statistical probabilities of limit-order book (LOB) shape through building the book using the ultra-high-frequency data from 23 liquid stocks traded on the Shenzhen Stock Exchange in 2003. We find that the averaged LOB shape has a maximum away from the same best price for both buy and sell LOBs. The LOB shape function has nice exponential form in the right tail. The buy LOB is found to be abnormally thicker for the price levels close to the same best although there are much more sell orders on the book. We also find that the LOB shape functions for both buy and sell sides have periodic peaks with a period of five. The 1-min averaged volumes at fixed tick level follow lognormal distributions, except for the left tails which display power-law behaviors, and exhibit long memory. Academic implications of our empirical results are also discussed briefly.

Rebuilding the limit order book: sequential Bayesian inference on hidden states

“…The typical shape of an LOB consists of a function with a maxima several price levels away from the mid-price which then slowly decays away (Bouchaud et al 2002, Gu et al 2008). In subplot one and two of figure 3, the mean shape of the LOB is shown at a point in time, with a Gamma distribution (α, β) fitted to each side of the LOB using maximum likelihood estimation (MLE).…”

“…Applied areas of interest include high-frequency trading (Avellaneda and Stoikov 2008), optimally executing large orders (Obizhaeva and Wang 2013), market making (Menkveld 2011), hidden volume detection (Christensen and Woodmansey 2013) and short-term price prediction (Cont et al 2010). Research into modelling various characteristics of the LOB behaviour includes book resiliency (Large 2007), buy/sell intensity (Hall and Hautsch 2007), dynamical behaviour (Roşu 2009), shape (Gu et al 2008) and * Corresponding author. Email: hlc54@cam.ac.uk information content (Cao et al 2009).…”

Replication of Cancellation Orders Using First-Passage Time Theory in Foreign Currency Market

“…In recent years, we have seen an increase on time precision on financial databases. Currently, professionals and scientists have access to a variety of order books with daily time increment [10], every second [1,14], or even millisecond [3,[5][6][7]15]. One important consequence of the rapid changes in database is the possibility to study financial markets almost as a stochastic scientific experiment, and the field of econophysics exactly focuses on this practice.…”

“…In recent years, we start to see in the financial literacy more researchers studying electronic order book dynamics, focusing on injection [7,[9][10][11] or annihilation [2][3][4][5][6]15] of limit orders. Especially, cancellation of orders play a major role in market fluctuation and is the principal sources of order annihilation.…”

Computational Visual Analysis of the Order Book Dynamics for Creating High-frequency Foreign Exchange Trading Strategies

“…This information was used to forecast future trend in financial prices because exact future prices are not needed to create a profitable trading strategy. In the specific case of the order book dynamics, several studies had shown that order books have relevant information to improve financial price direction prediction [1,2,3,4,10,11]. Therefore, the feature vector will combine elements from the order book and transaction dynamics.…”