# Multi-Level Order-Flow Imbalance in a Limit Order Book

## TL;DR

This paper introduces the concept of multi-level order-flow imbalance (MLOFI) in limit order books and demonstrates its effectiveness in predicting price changes across multiple stocks using high-quality Nasdaq data.

## Contribution

It presents a novel multi-level MLOFI measure and shows its improved predictive power for price changes as more levels are included, highlighting the importance of deep order flow.

## Key findings

- MLOFI improves price change prediction accuracy.
- Deeper order flow levels enhance model fit.
- Order flow at multiple levels influences price formation.

## Abstract

We study the multi-level order-flow imbalance (MLOFI), which is a vector quantity that measures the net flow of buy and sell orders at different price levels in a limit order book (LOB). Using a recent, high-quality data set for 6 liquid stocks on Nasdaq, we fit a simple, linear relationship between MLOFI and the contemporaneous change in mid-price. For all 6 stocks that we study, we find that the out-of-sample goodness-of-fit of the relationship improves with each additional price level that we include in the MLOFI vector. Our results underline how order-flow activity deep into the LOB can influence the price-formation process.