Order Aggressiveness and Order Book Dynamics
University of Copenhagen Economics Working Paper No. 2005/04
31 Pages Posted: 14 Jun 2005
Date Written: December 2004
In this paper, we study the determinants of order aggressiveness and traders' order submission strategy in an open limit order book market. Using order book data from the Australian Stock Exchange, we model traders' aggressiveness in market trading, limit order trading as well as in order cancellations on both sides of the market using a six-dimensional autoregressive intensity model. The information revealed by the open order book plays an important role in explaining the degree of order aggressiveness in the individual processes. Moreover, evidence for significant dynamic interdependencies between the individual processes confirms the usefulness of the multivariate setting. Overall, our empirical results confirm theoretical findings on limit order book trading and show that a trader's decision of when and which order to submit is significantly influenced by the queued volume, the market depth, the inside spread, recent volatility, as well as recent changes in both the order flow and the price.
Keywords: Order aggressiveness, multivariate intensity, open limit order book, order book dynamics
JEL Classification: G14, C32, C41
Suggested Citation: Suggested Citation