https://doi.org/10.1140/epjb/e2009-00337-6
The role of communication and imitation in limit order markets
1
Department of Economics, Università Politecnica delle Marche, Ancona, Italy
2
Department of Economics, City University London, London, UK
Corresponding author: a gabriele.tedeschi@gmail.com
Received:
27
November
2008
Revised:
10
September
2009
Published online:
10
October
2009
In this paper we develop an order driver market model with heterogeneous traders that imitate each other on different network structures. We assess how imitations among otherway noise traders, can give rise to well known stylized facts such as fat tails and volatility clustering. We examine the impact of communication and imitation on the statistical properties of prices and order flows when changing the networks' structure, and show that the imitation of a given, fixed agent, called “guru", can generate clustering of volatility in the model. We also find a positive correlation between volatility and bid-ask spread, and between fat-tailed fluctuations in asset prices and gap sizes in the order book.
PACS: 02.50.-r – Probability theory, stochastic processes, and statistics / 05.40.-a – Fluctuation phenomena, random processes, noise, and Brownian motion / 89.65.Gh – Economics; econophysics, financial markets, business and management / 89.65.-s – Social and economic systems
© EDP Sciences, Società Italiana di Fisica, Springer-Verlag, 2009
