The impact of heterogeneous trading rules on the limit order book and order flows

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Show simple item record Chiarella, C Iori, G Perello, J 2010-05-28T09:53:07Z 2009-01
dc.identifier.citation Journal of Economic Dynamics and Control, 2009, 33 (3), pp. 525 - 537
dc.identifier.issn 0165-1889
dc.identifier.other C1 en_US
dc.description.abstract In this paper we develop a model of an order-driven market where traders set bids and asks and post market or limit orders according to exogenously fixed rules. Agents are assumed to have three components of the expectation of future asset returns, namely fundamentalist, chartist and noise trader. Furthermore agents differ in the characteristics describing these components, such as time horizon, risk aversion and the weights given to the various components. The model developed here extends a great deal of earlier literature in that the order submissions of agents are determined by utility maximisation, rather than the mechanical unit order size that is commonly assumed. In this way the order flow is better related to the ongoing evolution of the market. For the given market structure we analyze the impact of the three components of the trading strategies on the statistical properties of prices and order flows and observe that it is the chartist strategy that is mainly responsible of the fat tails and clustering in the artificial price data generated by the model. The paper provides further evidence that large price changes are likely to be generated by the presence of large gaps in the book.
dc.publisher Elsevier Inc
dc.relation.hasversion Accepted manuscript version
dc.relation.isbasedon 10.1016/j.jedc.2008.08.001
dc.rights NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Economic Dynamics and Control. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Dynamics and Control, [Volume 33, Issue 3, March 2009, Pages 525–537] DOI#”
dc.title The impact of heterogeneous trading rules on the limit order book and order flows
dc.type Journal Article
dc.parent Journal of Economic Dynamics and Control
dc.journal.volume 3
dc.journal.volume 33
dc.journal.number 3 en_US
dc.publocation Amsterdam, Netherlands en_US
dc.identifier.startpage 525 en_US
dc.identifier.endpage 537 en_US BUS.School of Finance and Economics en_US
dc.conference Verified OK en_US
dc.for 1402 Applied Economics
dc.personcode 716350
dc.percentage 100 en_US Applied Economics en_US
dc.classification.type FOR-08 en_US
dc.edition en_US
dc.custom en_US en_US
dc.location.activity en_US
dc.description.keywords Market microstructure; Limit orders; Fundamentalism; Chartism; Large fluctuations en_US
dc.description.keywords Market microstructure
dc.description.keywords Limit orders
dc.description.keywords Fundamentalism
dc.description.keywords Chartism
dc.description.keywords Large fluctuations
pubs.embargo.period Not known
pubs.organisational-group /University of Technology Sydney
pubs.organisational-group /University of Technology Sydney/Faculty of Business
pubs.organisational-group /University of Technology Sydney/Faculty of Business/Finance
pubs.organisational-group /University of Technology Sydney/Strength - Quantitative Finance
utslib.copyright.status Open Access 2015-04-15 12:23:47.074767+10
utslib.collection.history General (ID: 2)
utslib.collection.history Finance (ID: 371)

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