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Statistical Predictions of Trading Strategies in Electronic Markets

Author

Listed:
  • Álvaro Cartea
  • Samuel N Cohen
  • Robert Graumans
  • Saad Labyad
  • Leandro Sánchez-Betancourt
  • Leon van Veldhuijzen

Abstract

We build statistical models to describe how market participants choose the direction, price, and volume of orders. Our dataset, which spans 16 weeks for four shares traded in Euronext Amsterdam, contains all messages sent to the exchange and includes algorithm identification and member identification. We obtain reliable out-of-sample predictions and report the top features that predict direction, price, and volume of orders sent to the exchange. The coefficients from the fitted models are used to cluster trading behavior and we find that algorithms registered as Liquidity Providers exhibit the widest range of trading behavior among dealing capacities. In particular, for the most liquid share in our study, we identify three types of behavior that we call (i) directional trading, (ii) opportunistic trading, and (iii) market making, and we find that around one-third of Liquidity Providers behave as market markers.

Suggested Citation

  • Álvaro Cartea & Samuel N Cohen & Robert Graumans & Saad Labyad & Leandro Sánchez-Betancourt & Leon van Veldhuijzen, 2025. "Statistical Predictions of Trading Strategies in Electronic Markets," Journal of Financial Econometrics, Oxford University Press, vol. 23(2), pages 31-53.
    • Handle: RePEc:oup:jfinec:v:23:y:2025:i:2:p:31-53.
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbae025
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    More about this item

    Keywords

    agent-based models; algorithmic trading; limit order book; supervision; statistical prediction;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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