Measuring the resiliency of an electronic limit order book [An article from: Journal of Financial Markets]

This digital document is a journal article from Journal of Financial Markets, published by Elsevier in 2007. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
An electronic limit order book is resilient when it reverts to its normal shape promptly after large trades. This paper suggests a continuous-time impulse response function based on intensities, which formalizes resiliency in terms of a time-frame and probability of order book replenishment. This is then estimated for trading on an LSE order book, using an appropriate parametric model which views orders and cancellations as a mutually-exciting ten-variate Hawkes point process. Consistent with findings in the related literature, in over 60 per cent of cases, the order book does not replenish reliably after a large trade. However, if it does replenish, it does so with a fairly fast half life of around 20s. Various other dynamics are quantified.