TY - GEN
T1 - (In)stability properties of limit order dynamics
AU - Even-Dar, Eyal
AU - Kakade, Sham M.
AU - Kearns, Michael
AU - Mansour, Yishay
PY - 2006
Y1 - 2006
N2 - We study the stability properties of the dynamics of the standard continuous limit-order mechanism that is used in modern equity markets, We ask whether such mechanisms are susceptible to "butterfly effects" -the infliction of large changes on common measures of market activity by only small perturbations of the order sequence, We show that the answer depends strongly on whether the market consists of "absolute" traders (who determine their prices independent of the current order book state) or "relative" traders (who determine their prices relative to the current bid and ask), We prove that while the absolute trader model enjoys provably strong stability properties, the relative trader model is vulnerable to great instability. Our theoretical results are supported by large-scale experiments using limit order data from INET, a large electronic exchange for NASDAQ stocks.
AB - We study the stability properties of the dynamics of the standard continuous limit-order mechanism that is used in modern equity markets, We ask whether such mechanisms are susceptible to "butterfly effects" -the infliction of large changes on common measures of market activity by only small perturbations of the order sequence, We show that the answer depends strongly on whether the market consists of "absolute" traders (who determine their prices independent of the current order book state) or "relative" traders (who determine their prices relative to the current bid and ask), We prove that while the absolute trader model enjoys provably strong stability properties, the relative trader model is vulnerable to great instability. Our theoretical results are supported by large-scale experiments using limit order data from INET, a large electronic exchange for NASDAQ stocks.
KW - Computational Finance
KW - Market Microstructure
UR - http://www.scopus.com/inward/record.url?scp=33748698028&partnerID=8YFLogxK
U2 - 10.1145/1134707.1134721
DO - 10.1145/1134707.1134721
M3 - ???researchoutput.researchoutputtypes.contributiontobookanthology.conference???
AN - SCOPUS:33748698028
SN - 1595932364
SN - 9781595932365
T3 - Proceedings of the ACM Conference on Electronic Commerce
SP - 120
EP - 129
BT - Proceedings of the 7th ACM Conference on Electronic Commerce 2006
PB - Association for Computing Machinery
T2 - 7th ACM Conference on Electronic Commerce
Y2 - 11 June 2006 through 15 June 2006
ER -