Large Large-Trader Activity Weakens the Long Memory of Limit Order Markets

9 Pages Posted: 27 Mar 2018

See all articles by Kevin Primicerio

Kevin Primicerio

CentraleSupélec

Damien Challet

CentraleSupélec; Encelade Capital SA

Date Written: March 22, 2018

Abstract

Using more than 6.7 billions of trades, we explore how the tick-by-tick dynamics of limit order books depends on the aggregate actions of large investment funds on a much larger (quarterly) timescale. In particular, we find that the well-established long memory of market order signs is markedly weaker when large investment funds trade either in a directional way and even weaker when their aggregate participation ratio is large. Conversely, we investigate to what respect a weaker memory of market order signs predicts that an asset is being actively traded by large funds. Theoretical arguments suggest two simple mechanisms that contribute to the observed effect: a larger number of active meta-orders and a modification of the distribution of size of meta-orders. Empirical evidence suggests that the number of active meta-orders is the most important contributor to the loss of market order sign memory.

Keywords: statistical finance, market microstructure

Suggested Citation

Primicerio, Kevin and Challet, Damien, Large Large-Trader Activity Weakens the Long Memory of Limit Order Markets (March 22, 2018). Available at SSRN: https://ssrn.com/abstract=3146997 or http://dx.doi.org/10.2139/ssrn.3146997

Kevin Primicerio (Contact Author)

CentraleSupélec ( email )

Labo M.A.S
Grande Voie des Vignes
Châtenay-Malabry CEDEX, 92295
France

Damien Challet

CentraleSupélec ( email )

Labo MICS
3, rue Joliot-Curie
Gif-sur-Yvette, 91192
France

Encelade Capital SA ( email )

Chemin du Bochet 8
Sulpice, 1025
Switzerland

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