Order aggressiveness and order book dynamics

In this paper, we study the determinants of order aggressiveness and traders' order submission strategy in an open limit order book market. Applying an order classification scheme, we model the most aggressive market orders, limit orders as well as cancellations on both sides of the market empl...

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Bibliographic Details
Published in:Empirical economics 2006-01, Vol.30 (4), p.973-1005
Main Authors: Hall, Anthony D., Hautsch, Nikolaus
Format: Article
Language:English
Subjects:
Bidding
Business strategies
Capital flow
Economic models
Empirical research
Liquidity
Prices
Regression analysis
Stock exchange
Trade
Volatility
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Summary:In this paper, we study the determinants of order aggressiveness and traders' order submission strategy in an open limit order book market. Applying an order classification scheme, we model the most aggressive market orders, limit orders as well as cancellations on both sides of the market employing a six-dimensional autoregressive conditional intensity model. Using order book data from the Australian Stock Exchange, we find that market depth, the queued volume, the bid-ask spread, recent volatility, as well as recent changes in both the order flow and the price play an important role in explaining the determinants of order aggressiveness. Overall, our empirical results broadly confirm theoretical predictions on limit order book trading. However, we also find evidence for behavior that can be attributed to particular liquidity and volatility effects. Reprinted by permission of Physica-Verlag
ISSN:0377-7332
1435-8921
DOI:10.1007/s00181-005-0008-7