Asymmetric statistics of order books: The role of discreteness and evidence for strategic order placement

TL;DR

This paper investigates the asymmetry in spread statistics of order books caused by discreteness and trader strategies, supported by data analysis and a microscopic model that reproduces real market behaviors.

Contribution

It introduces a microscopic model with non-uniform order deposition to explain and replicate the observed asymmetry and dynamics in order book spreads.

Findings

Asymmetry in spread statistics is linked to discreteness effects and trader strategies.

The model reproduces realistic intermittent market behaviors and spread relaxation dynamics.

Simulations show long periods of liquidity interrupted by volatile configurations.

Abstract

We show that the statistics of spreads in real order books is characterized by an intrinsic asymmetry due to discreteness effects for even or odd values of the spread. An analysis of data from the NYSE order book points out that traders' strategies contribute to this asymmetry. We also investigate this phenomenon in the framework of a microscopic model and, by introducing a non-uniform deposition mechanism for limit orders, we are able to quantitatively reproduce the asymmetry found in the experimental data. Simulations of our model also show a realistic dynamics with a sort of intermittent behavior characterized by long periods in which the order book is compact and liquid interrupted by volatile configurations. The order placement strategies produce a non-trivial behavior of the spread relaxation dynamics which is similar to the one observed in real markets.