Eur. Phys. J. B 73, 51-57 (2010)
https://doi.org/10.1140/epjb/e2009-00392-y

Order-splitting and long-memory in an order-driven market

¹ Department of International Business, National Chengchi University, Taipei 116, Taiwan
² International Business School, Brandeis University, Waltham MA 02453, USA

Corresponding author: ryuichi@nccu.edu.tw

Received: 25 February 2009
Revised: 18 June 2009
Published online: 20 November 2009

Abstract

Recent empirical research has documented long-memories of trading volume, volatility, and order-signs in stock markets. We conjecture that traders' order-splitting is related to these empirical features. This study conducts simulations on an order-driven economy where agents split their orders into small pieces and execute piece by piece to reduce price impact. We demonstrate that we can replicate the long-memories in our order-splitting economy and conclude that order-splitting can be a possible cause for these empirical properties.