Abstract
We investigate the dynamics of aggressive order in the financial market to further understand volatility. To analyze aggressive order, market orders in the order book are scrutinized. The market orders have different degrees of aggressiveness; therefore, we categorize market orders into four types: types Zero, One, A, and B, of which type B is the most aggressive. To examine the dynamics and impacts of each type of order, we use both macro- and micro-level approaches. From the macroscopic perspective, the burstiness and memory of type B is highly correlated with volatility. When traders face a financial crisis, they place bursty aggressive orders, and the orders are more predictable than usual. From the microscopic perspective, we additionally focus on the influence of the orders, particularly the price impact and resilience. The aggressive order has a greater impact than others, even when the price change of the aggressive order is smaller. Moreover, the aggressive order delivers more information on price because the aggressive order has a higher price impact than the execution cost.
Highlights
Volatility is an important indicator in the context of investment decisions, risk management, and monetary policy
Aggressive order dynamics are related to market volatility from a macroscopic point of view, and the impact and information of an individual order are investigated from a microscopic point of view
The results show that the burstiness and memory coefficients of interevent time of aggressive orders sharply increased when the Lehman Brothers became bankrupt and slowly recovered from the crisis
Summary
Volatility is an important indicator in the context of investment decisions, risk management, and monetary policy. Type Zero is a control and does not cause any price change We apply both macro- and microlevel approaches to understand the dynamics of aggressive orders and the effects of an individual order. Aggressive order dynamics are related to market volatility from a macroscopic point of view, and the impact and information of an individual order are investigated from a microscopic point of view. To the best of our knowledge, this is the first study to analyze the relationship between the burstiness and memory of the interevent time of order and market volatility. We show that type B, the most aggressive order, has a significant impact on the order book and contains a large amount of price information. The list of abbreviations of 65 firms is arranged according to the market capitalization on August 1, 2008: HSBA, BP, VOD, RDSA, GSK, RIO, RDSB, BG, AAL, BATS, BLT, AZN, RBS, XTA, TSCO, BARC, DGE, STAN, IMB, RB, ULVR, LLOY, BA, NG, SAB, PRU, ENRC, AV, BT, SSE, CNA, EMG, CBRY, SKY, KAZ, MRW, CPG, RR, IPR, LAND, ABF, LGEN, TLW, SBRY, VED, ANTO, PSON, OMU, SN, SLA, UU, RSA, CPI, MKS, CW, SMIN, 0EV1, BLND, JMAT, INTU, NXG, SVT, KGF, HMSO, and AMFW
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