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Investigating Intertrade Durations using Copulas: An Experiment with NASDAQ Data

Investigating Intertrade Durations using Copulas: An Experiment with NASDAQ Data The pattern of dependence between liquidity, durations (orders and trades) and bid-ask spreads in a limit order market are examined in high resolution invoking copulas and graph theory. Using intraday data from a sample of NASDAQ 100 stocks and an experimental design, we study the information pathways in markets in the presence of algorithmic traders. Our results confirm that multivariate analysis is more appropriate to investigate these information pathways. We observe that the strength and nature of the dependence between variables vary through the trading day. We confirm the existence of stylised aspects of algorithmic trading, such as tail dependence in trade durations, a balance between buy and sell side in order durations, liquidity and bid-ask spreads, and the bid-ask spread and liquidity trade-off in the dependence structure. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Algorithmic Finance IOS Press

Investigating Intertrade Durations using Copulas: An Experiment with NASDAQ Data

Chakravarty, Ranjan R.; Pani, Sudhanshu
Algorithmic Finance , Volume 9 (3-4): 22 – Aug 3, 2022
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Publisher
IOS Press
Copyright
Copyright © 2022 © 2022 – IOS Press. All rights reserved
ISSN
2158-5571
eISSN
2157-6203
DOI
10.3233/af-200362
Publisher site
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Abstract

The pattern of dependence between liquidity, durations (orders and trades) and bid-ask spreads in a limit order market are examined in high resolution invoking copulas and graph theory. Using intraday data from a sample of NASDAQ 100 stocks and an experimental design, we study the information pathways in markets in the presence of algorithmic traders. Our results confirm that multivariate analysis is more appropriate to investigate these information pathways. We observe that the strength and nature of the dependence between variables vary through the trading day. We confirm the existence of stylised aspects of algorithmic trading, such as tail dependence in trade durations, a balance between buy and sell side in order durations, liquidity and bid-ask spreads, and the bid-ask spread and liquidity trade-off in the dependence structure.

Journal

Algorithmic Finance – IOS Press

Published: Aug 3, 2022

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