Abstract

https://ssrn.com/abstract=2648457
 


 



Effects of Limit Order Book Information Level on Market Stability Metrics


Mark E. Paddrik


Government of the United States of America - Office of Financial Research

Roy Hayes Jr.


University of Virginia

William T. Scherer


University of Virginia

Peter Beling


University of Virginia, Dept. of System & Information Engineering

November 25, 2014

Journal of Economic Interaction and Coordination, Forthcoming
Office of Financial Research Working Paper No. 14-09

Abstract:     
Using an agent-based model of the limit order book, we explore how the levels of information available to participants, exchanges, and regulators can be used to improve our understanding of the stability and resiliency of a market. Ultimately, we want to know if electronic market data contains previously undetected information that could allow us to better assess market stability. Using data produced in the controlled environment of an agent-based model’s limit order book, we examine various resiliency indicators to determine their predictive capabilities. Most of the types of data created have traditionally been available either publicly or on a restricted basis to regulators and exchanges, but other types have never been collected. We confirmed our findings using actual order flow data with user identifications included from the CME (Chicago Mercantile Exchange) and New York Mercantile Exchange (NYMEX). Our findings strongly suggest that high-fidelity microstructure data in combination with price data can be used to define stability indicators capable of reliably signaling a high likelihood for an imminent flash crash event about one minute before it occurs.

Number of Pages in PDF File: 27


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Date posted: August 22, 2015 ; Last revised: November 12, 2015

Suggested Citation

Paddrik, Mark E. and Hayes, Roy and Scherer, William T. and Beling, Peter, Effects of Limit Order Book Information Level on Market Stability Metrics (November 25, 2014). Journal of Economic Interaction and Coordination, Forthcoming; Office of Financial Research Working Paper No. 14-09. Available at SSRN: https://ssrn.com/abstract=2648457 or http://dx.doi.org/10.2139/ssrn.2648457

Contact Information

Mark Endel Paddrik (Contact Author)
Government of the United States of America - Office of Financial Research ( email )
717 14th Street, NW
Washington DC, DC 20005
United States

Roy Lee Hayes Jr.
University of Virginia ( email )
United States
William T. Scherer
University of Virginia ( email )
United States
Peter Beling
University of Virginia, Dept. of System & Information Engineering ( email )
1400 University Ave
Charlottesville, VA 22903
United States
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