Eur. Phys. J. B 71, 499-510 (2009)
https://doi.org/10.1140/epjb/e2009-00297-9

Studies of the limit order book around large price changes

¹ Santa Fe Institute, 1399 Hyde Park Road, Santa Fe, NM, 87501, USA
² ISI Foundation - Viale S. Severo 65, 10133 Torino, Italy
³ Institute of Physics, Budapest University of Technology and Economics - Budafoki út. 8., 1111 Budapest, Hungary

Corresponding author: ^a bence@santafe.edu

Received: 5 January 2009
Revised: 30 June 2009
Published online: 11 September 2009

Abstract

We study the dynamics of the limit order book of liquid stocks after experiencing large intra-day price changes. In the data we find large variations in several microscopical measures, e.g., the volatility the bid-ask spread, the bid-ask imbalance, the number of queuing limit orders, the activity (number and volume) of limit orders placed and canceled, etc. The relaxation of the quantities is generally very slow that can be described by a power law of exponent ≈ 0.4. We introduce a numerical model in order to understand the empirical results better. We find that with a zero intelligence deposition model of the order flow the empirical results can be reproduced qualitatively. This suggests that the slow relaxations might not be results of agents' strategic behaviour. Studying the difference between the exponents found empirically and numerically helps us to better identify the role of strategic behaviour in the phenomena.