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The role of volume in order book dynamics: a multivariate Hawkes process analysis

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  • Marcello Rambaldi
  • Emmanuel Bacry
  • Fabrizio Lillo

Abstract

We show that multivariate Hawkes processes coupled with the nonparametric estimation procedure first proposed in Bacry and Muzy [IEEE Trans. Inform. Theory, 2016, 62, 2184–2202] can be successfully used to study complex interactions between the time of arrival of orders and their size observed in a limit order book market. We apply this methodology to high-frequency order book data of futures traded at EUREX. Specifically, we demonstrate how this approach is amenable not only to analyse interplay between different order types (market orders, limit orders, cancellations) but also to include other relevant quantities, such as the order size, into the analysis, showing also that simple models assuming the independence between volume and time are not suitable to describe the data.

Suggested Citation

  • Marcello Rambaldi & Emmanuel Bacry & Fabrizio Lillo, 2017. "The role of volume in order book dynamics: a multivariate Hawkes process analysis," Quantitative Finance, Taylor & Francis Journals, vol. 17(7), pages 999-1020, July.
    • Handle: RePEc:taf:quantf:v:17:y:2017:i:7:p:999-1020
    DOI: 10.1080/14697688.2016.1260759
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