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Trading Networks

32 Pages Posted: 17 Mar 2009 Last revised: 14 Mar 2010

Lada Adamic

University of Michigan at Ann Arbor; Xerox Corp. - Palo Alto Research Center

Celso Brunetti

Board of Governors of the Federal Reserve System

Jeffrey H. Harris

American University

Andrei A. Kirilenko

Imperial College London - Centre for Global Finance and Technology

Date Written: March 5, 2010

Abstract

We model and measure patterns of order execution in order driven markets. We model these patterns as trading networks - graphs consisting of traders (nodes) and pairwise buy-sell connections among them (edges) that occured within a period of time. We construct a time series of over 12,000 trading networks using audit trail, transaction-level data for the September 2009 E-mini S&P 500 futures contract. We find that network metrics that quantify patterns of order execution are highly contemporaneously correlated with returns, volatility, volume, duration, and market liquidity. We also find that network metrics strongly Granger-cause intertrade duration and trading volume, but are not Granger-caused by them. We conclude that network metrics can be used to characterize the interaction between latent order submission strategies and transaction prices, trading volume, intertrade duration, and liquidity.

Keywords: trading networks, financial networks, limit order book, limit order markets

JEL Classification: G12, D82, D83, D85

Suggested Citation

Adamic, Lada and Brunetti, Celso and Harris, Jeffrey H. and Kirilenko, Andrei A., Trading Networks (March 5, 2010). Available at SSRN: https://ssrn.com/abstract=1361184 or http://dx.doi.org/10.2139/ssrn.1361184

Lada Adamic

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States
+1 (734) 615 2132 (Phone)

HOME PAGE: http://www-personal.umich.edu/~ladamic

Xerox Corp. - Palo Alto Research Center ( email )

3333 Coyote Hill Road
Palo Alto, CA 94304-1314
United States
650-812-4147 (Phone)

Celso Brunetti

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jeffrey H. Harris

American University ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-6669 (Phone)

Andrei A. Kirilenko (Contact Author)

Imperial College London - Centre for Global Finance and Technology ( email )

South Kensington Campus
London, SW7 2AZ
United Kingdom

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