Regensburg 2016 – wissenschaftliches Programm

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SOE: Fachverband Physik sozio-ökonomischer Systeme

SOE 7: Poster

SOE 7.5: Poster

Montag, 7. März 2016, 18:00–20:00, Poster B1

Effects of Microscopic Limit Order Book Structure on Price Formation — •Martin Vogt and Stephan Eule — Max-Planck-Institut für Dynamik und Selbstorganisation, Am Faßberg, 37077 Göttingen

Most modern financial markets employ an electronic limit order book to temporarily store supply and demand in form of unexecuted buy and sell limit orders. In a high frequency setting, the central economic question of price formation is governed by the static and dynamic properties of the order book in a continuous double auction market system. Prior analyses of high frequency, high resolution order book data have mainly focused on three different issues:

(i) Static statistics of price determining quantities such as spread size and price jump distributions,

(ii) how the flow of incoming limit and market orders and their cancellations influence those statistics,

(iii) and the effect of the order book's state itself on the dynamics of the order flow.

While these issues govern price formation on short scales, past analyses have shown that dynamic properties of order books such as price relaxation and order book resilience are important factors when trading frequently. Consequently, these dynamic properties are important determinants of optimal execution strategies. We investigate the dynamic properties in a zero intelligence setting and compare them to the assumptions of previous optimal execution models as well as real market data from the Deutsche Börse.