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The self-exciting nature of the bid-ask spread dynamics

Author

Listed:
  • Ruihua Ruan

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Emmanuel Bacry

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Jean-François Muzy

    (SPE - Laboratoire Sciences Pour l’Environnement - INEE-CNRS - Institut Ecologie et Environnement - CNRS Ecologie et Environnement - CNRS - Centre National de la Recherche Scientifique - INSIS - CNRS - Institut des Sciences de l'Ingénierie et des Systèmes - CNRS Ingénierie - Università di Corsica Pasquale Paoli [Université de Corse Pascal Paoli] - Partenaires INRAE)

Abstract

The bid-ask spread, which is defined by the difference between the best selling price and the best buying price in a Limit Order Book at a given time, is a crucial factor in the analysis of financial securities. In this study, we propose a "State-dependent Spread Hawkes model" (SDSH) that accounts for various spread jump sizes and incorporates the impact of the current spread state on its intensity functions. We apply this model to the high-frequency data from the Cac40 Euronext market and capture several statistical properties, such as the spread distributions, inter-event time distributions, and spread autocorrelation functions. We illustrate the ability of the SDSH model to forecast spread values at short-term horizons.

Suggested Citation

  • Ruihua Ruan & Emmanuel Bacry & Jean-François Muzy, 2023. "The self-exciting nature of the bid-ask spread dynamics," Working Papers hal-04281811, HAL.
    • Handle: RePEc:hal:wpaper:hal-04281811
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