Faculté des sciences

Feedback and efficiency in limit order markets

Challet, Damien

In: Physica A: Statistical Mechanics and its Applications, 2008, vol. 387, no. 15, p. 3831-3836

A consistency criterion for price impact functions in limit order markets is proposed that prohibits chain arbitrage exploitation. Both the bid-ask spread and the feedback of sequential market orders of the same kind onto both sides of the order book are essential to ensure consistency at the smallest time scale. All the stocks investigated in Paris Stock Exchange have consistent price impact... Plus

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    Summary
    A consistency criterion for price impact functions in limit order markets is proposed that prohibits chain arbitrage exploitation. Both the bid-ask spread and the feedback of sequential market orders of the same kind onto both sides of the order book are essential to ensure consistency at the smallest time scale. All the stocks investigated in Paris Stock Exchange have consistent price impact functions.