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Learning and Information Dissemination in Limit Order Markets

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Abstract

What can traders learn and how does learning affect the market When information is asymmetric, short-lived, and uninformed traders learn, we present an artificial limit order market model to examine the effect of learning, information value, and order aggressiveness on information dissemination efficiency, bid-ask spread, order submission, and order profit of traders. We find that learning helps the uninformed traders to acquire private information more effectively and hence improves market information dissemination. Also the informed traders in general consume liquidity while the uninformed traders mainly supply liquidity. More interestingly, due to the learning and short-lived information, the bid-ask spread and its volatility are positively related to the probability of informed trading. The results help us to understand the behavior of uninformed traders and provide substantial insight and intuition into the trading process.

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  • Lijian Wei & Wei Zhang & Xue-Zhong He & Yongjie Zhang, 2013. "Learning and Information Dissemination in Limit Order Markets," Research Paper Series 333, Quantitative Finance Research Centre, University of Technology, Sydney.
    • Handle: RePEc:uts:rpaper:333
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    Cited by:

    1. Yi-Fang Liu & Wei Zhang & Chao Xu & Jørgen Vitting Andersen & Hai-Chuan Xu, 2014. "Impact of information cost and switching of trading strategies in an artificial stock market," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01011701, HAL.
    2. Yi-Fang Liu & Wei Zhang & Chao Xu & Jørgen Vitting Andersen & Hai-Chuan Xu, 2014. "Impact of information cost and switching of trading strategies in an artificial stock market," Post-Print halshs-01215947, HAL.
    3. Yi-Fang Liu & Wei Zhang & Chao Xu & Jørgen Vitting Andersen & Hai-Chuan Xu, 2014. "Impact of information cost and switching of trading strategies in an artificial stock market," Post-Print halshs-00983051, HAL.
    4. Yi-Fang Liu & Wei Zhang & Chao Xu & J{o}rgen Vitting Andersen & Hai-Chuan Xu, 2013. "Impact of information cost and switching of trading strategies in an artificial stock market," Papers 1311.4274, arXiv.org, revised Jul 2014.
    5. Carl Chiarella & Xue-Zhong He & Lijian Wei, 2013. "Learning and Evolution of Trading Strategies in Limit Order Markets," Research Paper Series 335, Quantitative Finance Research Centre, University of Technology, Sydney.
    6. Yi-Fang Liu & Wei Zhang & Chao Xu & Jørgen Vitting Andersen & Hai-Chuan Xu, 2014. "Impact of information cost and switching of trading strategies in an artificial stock market," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00983051, HAL.
    7. Yi-Fang Liu & Wei Zhang & Chao Xu & Jørgen Vitting Andersen & Hai-Chuan Xu, 2014. "Impact of information cost and switching of trading strategies in an artificial stock market," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01215947, HAL.
    8. Yosra Mefteh Rekik & Younes Boujelbene, 2015. "Price Dynamics and Market Volatility: Behavioral Heterogeneity under Switching Trading Strategies on Artificial Financial Market," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 6(2), pages 33-43, April.
    9. Yi-Fang Liu & Wei Zhang & Chao Xu & Jørgen Vitting Andersen & Hai-Chuan Xu, 2014. "Impact of information cost and switching of trading strategies in an artificial stock market," Documents de travail du Centre d'Economie de la Sorbonne 14031, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

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    More about this item

    Keywords

    Limit order book; continuous double auction; learning; information dissemination; order aggressiveness; bid-ask spread;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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