Research Papers

darthtrader · April 13, 2008

I've been finding some pretty interesting stuff in the academic research paper basement...If anyone else finds research papers along the lines that would fit in the trading style of most people here please post in this thread(ie. not real interested in exotic derivative type research).

Some this stuff is quite math heavy and I've only printed out a few to actually read over but probly worth a look.

Forecasting in Continuous Double Auction

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=924760

Does The Option to Cancel an Order in a Double Auction Market Matter?

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=292152

Probabilistic Properties of the Continuous Double Auction

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1107114PaperDownload

BlowFish · April 13, 2008

I've been finding some pretty interesting stuff in the academic research paper basement...If anyone else finds research papers along the lines that would fit in the trading style of most people here please post in this thread(ie. not real interested in exotic derivative type research).
Some this stuff is quite math heavy and I've only printed out a few to actually read over but probly worth a look.

Forecasting in Continuous Double Auction

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=924760

Does The Option to Cancel an Order in a Double Auction Market Matter?

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=292152

Probabilistic Properties of the Continuous Double Auction

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1107114PaperDownload

First paper looked difficult I quickly abandoned that. Third one appears to have gone.

The second one was a little more interesting however it seems pretty obvious that if it is a FIFO order matching system people will exploit that by placing limit orders at certain levels and then cancelling if they subsequently do not wish to trade at that level. The other thing that does not appear to be discussed is the effect of tick size. Too small a tick size deters people from offering liquidity 'early' (in the form of limit orders) as it costs a relatively smaller amount to join late. So the answer seems obviously yes but less so in markets with smaller tick size. e.g. If you look at say YM compared to ES the difference in the order book is greater than would be suggested by the different total contracts traded. YM is thinner than you would expect as it is cheap to better the inside bid/ask. Another side effect of this is increased volatility.

If this sort of stuff interests you a useful and practical book that deals with the effect different exchange regulations have on how the participants operate is Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris. A truly great book that offers a whole lot more solid trading information.

Cheers.

darthtrader · April 14, 2008

Ahh, I actually read Trading and Exchanges quite awhile ago but really need to read it again as I was too much of a newb at the time to really get much from it other than the concept of "front running".

Sorry if some of these don't work, it seems the paper download changes pretty quick to having to pay for it. If one does change it seems pretty easy to find the paper with google by just search for the title.

I thought this was an interesting comparison between double action markets and bookmakers, which i think might be relevant between specialist/market makers vs ECN

The Double-Auction Gambling Market: An Experimental Examination

http://www.encyclopedia.com/doc/1G1-167304929.html

I just ordered a new printer and haven't really felt like getting too deep into reading the PDfs. Here is more, I didn't think this post went through intially.

An Empirical Behavioral Model of Liquidity and Volatility

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1011403

A Simulation Analysis of the Microstructure of Double Auction Markets

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=841608

What Pieces of Limit Order Book Information Matter in Explaining the Behavior of Aggressive and Patient Traders?

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=489508

Understanding Order Flow

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=842482

Analysis of Limit Order Book and Order Flow

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=488422

Liquidity, Size and Cycle of Order Flow

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=621441