# The market nanostructure origin of asset price time reversal asymmetry

## TL;DR

This paper introduces a framework to analyze lead-lag networks across timescales in financial markets, revealing complex asymmetric influences driven by different trader behaviors, providing new insights into market nanostructure and causality.

## Contribution

The paper presents a novel method to infer lead-lag networks at multiple timescales, uncovering complex asymmetric influence patterns in trader activity and market dynamics.

## Key findings

- Strong asymmetric influence of timescales on lead-lag networks
- Different behaviors of institutional and retail traders affect causality structures
- Market nanostructure reveals complex causality beyond previous models

## Abstract

We introduce a framework to infer lead-lag networks between the states of elements of complex systems, determined at different timescales. As such networks encode the causal structure of a system, infering lead-lag networks for many pairs of timescales provides a global picture of the mutual influence between timescales. We apply our method to two trader-resolved FX data sets and document strong and complex asymmetric influence of timescales on the structure of lead-lag networks. Expectedly, this asymmetry extends to trader activity: for institutional clients in our dataset, past activity on timescales longer than 3 hours is more correlated with future activity at shorter timescales than the opposite (Zumbach effect), while a reverse Zumbach effect is found for past timescales shorter than 3 hours; retail clients have a totally different, and much more intricate, structure of asymmetric timescale influence. The causality structures are clearly caused by markedly different behaviors of the two types of traders. Hence, market nanostructure, i.e., market dynamics at the individual trader level, provides an unprecedented insight into the causality structure of financial markets, which is much more complex than previously thought.