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

By S. Maslov, M. Mills. 2001

158 citations recorded by the source corpus.

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.

Subfields: Condensed Matter Physics, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/ae985056d3fcfff79a62b879b3d7834da4ed9e9a

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In Condensed Matter Physics

In Economics and Econometrics

In Finance

Citations in the corpus

Limit order books (2010, background): “For two stocks traded on NASDAQ, Maslov and Mills (2001) reported power-law and log-normal distributions to fit the distribution of incoming limit order sizes |ωx |.”
High-frequency trading in a limit order book (2008, background): “[3], Maslow and Mills [9]) and the temporary price impact of market orders (Weber and Rosenow [14], Bouchaud et al.”
Testing Stylized Facts of Bitcoin Limit Order Books (2019, background): “Another class of works studies the empirical frequency distribution of transaction sizes, for example Gopikrishnan et al. (2000), Maslov and Mills (2001) and Mu et al. (2009).”
Order book approach to price impact (2003, result): “Its overall shape agrees with the results of Challet and Stinchcombe (2001), Maslov and Mills (2001) and Bouchaud et al. (2002).”
Econophysics: Empirical facts and agent-based models (2009, unknown): “Many subsequent papers offer complementary empirical findings and modeling, e.g. Gopikrishnan et al. (2000a), Challet and Stinchcombe (2001), Maslov and Mills (2001), Bouchaud et al. (2002), Potters and Bouchaud (2003).”
Statistical theory of the continuous double auction (2002, background): “Farmer, “ The power of patience: A behavioral regularity in limit order placement” condmat 0206280, to appear in Quantitative Finance, October (2002) [27] S.”
A Stochastic Model for Order Book Dynamics (2010, unknown): “Bouchaud et al. (2008), Smith et al. (2003), Bovier et al. (2006), Luckock (2003), and Maslov and Mills (2001) propose stochastic models of order book dynamics in the spirit of the one proposed here but focus on unconditional / steady–state distributions of various quantities rather than the condi”