Trading Networks

24 Pages Posted: 27 Nov 2017

See all articles by Lada Adamic

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 - Department of Finance and Real Estate

Andrei A. Kirilenko

University of Cambridge - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: October 2017

Abstract

In this paper, we analyse the time series of 12,000+ networks of traders in the E‐mini S&P 500 stock index futures contract and we empirically link network variables with financial variables more commonly used to describe market conditions. We show that network variables lead trading volume, intertrade duration, effective spreads, trade imbalances and other market liquidity measures. Network variables reflect information, information asymmetry and market liquidity and significantly presage future market conditions prior to volume or liquidity measures. We also find two‐way Granger‐causality between network variables and both returns and volatility, highlighting strong feedback between market conditions and trading behaviour.

Keywords: Financial forecasting and simulation, Network formation and analysis, Trading volume

Suggested Citation

Adamic, Lada and Brunetti, Celso and Harris, Jeffrey H. and Kirilenko, Andrei A., Trading Networks (October 2017). The Econometrics Journal, Vol. 20, Issue 3, pp. S126-S149, 2017. Available at SSRN: https://ssrn.com/abstract=3077105 or http://dx.doi.org/10.1111/ectj.12090

Lada Adamic (Contact Author)

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 - Department of Finance and Real Estate ( email )

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

Andrei A. Kirilenko

University of Cambridge - Finance ( email )

Cambridge
United Kingdom

HOME PAGE: http://https://www.jbs.cam.ac.uk/faculty-research/faculty-a-z/andrei-kirilenko/

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