The Price Impact of Order Book Events release_bmeemp6j2bcfho7mfcy6h3kij4

by Rama Cont and Arseniy Kukanov and Sasha Stoikov

Released as a article .

2011  

Abstract

We study the price impact of order book events - limit orders, market orders and cancelations - using the NYSE TAQ data for 50 U.S. stocks. We show that, over short time intervals, price changes are mainly driven by the order flow imbalance, defined as the imbalance between supply and demand at the best bid and ask prices. Our study reveals a linear relation between order flow imbalance and price changes, with a slope inversely proportional to the market depth. These results are shown to be robust to seasonality effects, and stable across time scales and across stocks. We argue that this linear price impact model, together with a scaling argument, implies the empirically observed "square-root" relation between price changes and trading volume. However, the relation between price changes and trade volume is found to be noisy and less robust than the one based on order flow imbalance.
In text/plain format

Archived Files and Locations

application/pdf  741.6 kB
file_3scr7hivpne2xi52sksukfwyqy
archive.org (archive)
core.ac.uk (web)
web.archive.org (webarchive)
Read Archived PDF
Preserved and Accessible
Type  article
Stage   accepted
Date   2011-04-13
Version   v3
Language   en ?
arXiv  1011.6402v3
Work Entity
access all versions, variants, and formats of this works (eg, pre-prints)
Catalog Record
Revision: b688dc46-ebdd-48bc-a780-49b3af70c307
API URL: JSON