# Agent-based model of information diffusion in the limit order book trading

## TL;DR

This paper demonstrates that in agent-based models of limit order book trading, scale-free network interactions among zero-intelligence traders can reproduce market stylized facts, offering a new explanation for their emergence.

## Contribution

It shows that specific network topologies, especially scale-free networks, are crucial for reproducing stylized facts in limit order book markets, independent of trader strategies.

## Key findings

- Scale-free connectivity reproduces stylized facts.
- No-interaction does not produce stylized facts.
- Regular lattices and Erdos-Renyi networks are ineffective.

## Abstract

There are multiple explanations for stylized facts in high-frequency trading, including adaptive and informed agents, many of which have been studied through agent-based models. This paper investigates an alternative explanation by examining whether, and under what circumstances, interactions between traders placing limit order book messages can reproduce stylized facts, and what forms of interaction are required. While the agent-based modeling literature has introduced interconnected agents on networks, little attention has been paid to whether specific trading network topologies can generate stylized facts in limit order book markets. In our model, agents are strictly zero-intelligence, with no fundamental knowledge or chartist-like strategies, so that the role of network topology can be isolated. We find that scale-free connectivity between agents reproduces stylized facts observed in markets, whereas no-interaction does not. Our experiments show that regular lattices and Erdos-Renyi networks are not significantly different from the no-interaction baseline. Thus, we provide a completely new, potentially complementary, explanation for the emergence of stylized facts.