Large Price Changes in the Limit Order Book of Established and Emergent Markets

Presentation

Abstract

We study the dynamics of the limit order book of liquid stocks after experiencing large intra-day price changes on the London Stock Exchnage. We find large variations in several microscopical measures, e.g., the volatility, the bid-ask spread, the bid-ask imbalance, the number of queuing limit orders, the activity (number and volume) of limit orders placed and canceled, etc. The relaxation of the quantities is generally very slow that can be described by a power law of exponent ~0.4. We introduce a zero intelligence deposition model of the order flow and reproduce some empirical results qualitatively. We carried out similar empirical studies on the emergent market of the Shenzhen Stock Exchange and identified similarities to and differences from the behavior of established markets. Our data allow for distinguishing between reactions of individual and institutional investors and we conclude that the latter are more aggressive.

Last modified: 2012.11.05.