Article

(In)Stability properties of limit order dynamics

Authors:

Eyal EvenDar,

Sham M. Kakade,

Michael Kearns,

Yishay MansourAuthors Info & Claims

EC '06: Proceedings of the 7th ACM conference on Electronic commerce

Pages 120 - 129

https://doi.org/10.1145/1134707.1134721

Published: 11 June 2006 Publication History

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Abstract

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 "buttery effects" --- the iniction 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.

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Cited By

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Diana EElzayn HKearns MRoth ASharifi-Malvajerdi SZiani JBiró PHartline JOstrovsky MProcaccia A(2020)Differentially Private Call Auctions and Market ImpactProceedings of the 21st ACM Conference on Economics and Computation10.1145/3391403.3399500(541-583)Online publication date: 13-Jul-2020
https://dl.acm.org/doi/10.1145/3391403.3399500
Das S(2008)The effects of market-making on price dynamicsProceedings of the 7th international joint conference on Autonomous agents and multiagent systems - Volume 210.5555/1402298.1402347(887-894)Online publication date: 12-May-2008
https://dl.acm.org/doi/10.5555/1402298.1402347
Chang KJohnson A(2008)Online and Offline Selling in Limit Order MarketsProceedings of the 4th International Workshop on Internet and Network Economics10.1007/978-3-540-92185-1_13(41-52)Online publication date: 17-Dec-2008
https://dl.acm.org/doi/10.1007/978-3-540-92185-1_13

Index Terms

(In)Stability properties of limit order dynamics
1. Applied computing
  1. Law, social and behavioral sciences
    1. Economics

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Published In

EC '06: Proceedings of the 7th ACM conference on Electronic commerce

June 2006

342 pages

ISBN:1595932364

DOI:10.1145/1134707

General Chair:
Joan Feigenbaum
Yale University, USA
,
Program Chairs:
John Chuang
University of California Berkeley, USA
,
David M. Pennock
Yahoo! Research, USA

Permission to make digital or hard copies of all or part of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and the full citation on the first page. Copyrights for components of this work owned by others than ACM must be honored. Abstracting with credit is permitted. To copy otherwise, or republish, to post on servers or to redistribute to lists, requires prior specific permission and/or a fee. Request permissions from [email protected]

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Association for Computing Machinery

New York, NY, United States

Publication History

Published: 11 June 2006

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EC06

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EC06: ACM Conference on Electronic Commerce

June 11 - 15, 2006

Michigan, Ann Arbor, USA

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Overall Acceptance Rate 664 of 2,389 submissions, 28%

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Cited By

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Diana EElzayn HKearns MRoth ASharifi-Malvajerdi SZiani JBiró PHartline JOstrovsky MProcaccia A(2020)Differentially Private Call Auctions and Market ImpactProceedings of the 21st ACM Conference on Economics and Computation10.1145/3391403.3399500(541-583)Online publication date: 13-Jul-2020
https://dl.acm.org/doi/10.1145/3391403.3399500
Das S(2008)The effects of market-making on price dynamicsProceedings of the 7th international joint conference on Autonomous agents and multiagent systems - Volume 210.5555/1402298.1402347(887-894)Online publication date: 12-May-2008
https://dl.acm.org/doi/10.5555/1402298.1402347
Chang KJohnson A(2008)Online and Offline Selling in Limit Order MarketsProceedings of the 4th International Workshop on Internet and Network Economics10.1007/978-3-540-92185-1_13(41-52)Online publication date: 17-Dec-2008
https://dl.acm.org/doi/10.1007/978-3-540-92185-1_13

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