The role of communication and imitation in limit order markets

Tedeschi, G., Iori, G. & Gallegati, M. (2009). The role of communication and imitation in limit order markets. European Physical Journal B (The), 71(4), pp. 489-497. doi: 10.1140/epjb/e2009-00337-6

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Abstract

In this paper we develop an order driver market model with heterogeneous traders that imitate each other on different network structures. We assess how imitations among otherway noise traders, can give rise to well known stylized facts such as fat tails and volatility clustering. We examine the impact of communication and imitation on the statistical properties of prices and order flows when changing the networks’ structure, and show that the imitation of a given, fixed agent, called ”guru”, can generate clustering of volatility in the model. We also find a positive correlation between volatility and bid-ask spread, and between fat-tailed fluctuations in asset prices and gap sizes in the order book.

Item Type: Article
Additional Information: Copyright EDP Sciences 2009
Uncontrolled Keywords: Probability theory, stochastic processes and statistics, Fluctuation phenomena, random processes, noise, and Brownian motion,Economics, econophysics, financial markets, business and management, Social and economic system
Subjects: H Social Sciences > HB Economic Theory
Divisions: School of Social Sciences > Department of Economics
Related URLs:
URI: http://openaccess.city.ac.uk/id/eprint/3890

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