Order aggressiveness and order book dynamics

  • Anthony D. Hall
  • Nikolaus Hautsch
Part of the Studies in Empirical Economics book series (STUDEMP)

In this paper, we study the determinants of order aggressiveness and traders' order submission strategy in an open limit order book market. Applying an order classification scheme, we model the most aggressive market orders, limit orders as well as cancellations on both sides of the market employing a sixdimensional autoregressive conditional intensity model. Using order book data from the Australian Stock Exchange, we find that market depth, the queued volume, the bid-ask spread, recent volatility, as well as recent changes in both the order flow and the price play an important role in explaining the determinants of order aggressiveness. Overall, our empirical results broadly confirm theoretical predictions on limit order book trading. However, we also find evidence for behavior that can be attributed to particular liquidity and volatility effects.


Open limit order book Aggressive market orders Aggressive limit orders and cancellations Multivariate intensity 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Al-Suhaibani M, Kryzanowski L 2000 An exploratory analysis of the order book, and order flow and execution on the Saudi stock market. J Bank Financ 24:1323-1357CrossRefGoogle Scholar
  2. Bauwens L, Giot P 2000 The logarithmic ACD model: an application to the Bid/Ask Quote Process of two NYSE stocks. Ann Econ Stat 60:117-149Google Scholar
  3. Bauwens L, Hautsch N (2003) Dynamic Latent Factor Models for Intensity Processes, Discussion Paper 2003/103, CORE, Université Catholique de LouvainGoogle Scholar
  4. Bauwens L, Veredas D 2004 The stochastic conditional duration model: a latent factor model for the analysis of financial durations. J Econom 119:381-412CrossRefGoogle Scholar
  5. Biais B, Hillion P, Spatt C 1995 An empirical analysis of the limit order book and the order flow in the Paris bourse. J Financ 50:1655-1689CrossRefGoogle Scholar
  6. Bisière C, Kamionka T 2000 Timing of orders, orders aggressiveness and the order book at the Paris bourse. Ann Econ Stat 60:43-72Google Scholar
  7. Bowsher CG 2002 Modelling Security Markets in Continuous Time: Intensity based, Multivariate Point Process Models, Discussion Paper 2002-W22, Nuffield College, OxfordGoogle Scholar
  8. Brémaud P 1981 Point processes and queues, martingale dynamics. Springer, Berlin Heidelberg New YorkGoogle Scholar
  9. Cao C, Hansch O, Wang X (2003) The Informational Content of an Open Limit Order Book, Discussion paper, Pennsylvania State UniversityGoogle Scholar
  10. Cohen KJ, Maier SF, Schwartz RA, Whitcomb DK 1981 Transaction costs, order placement strategy, and existence of the bid-ask spread. J Polit Econ 89(2):287-305CrossRefGoogle Scholar
  11. Coppejans M, Domowitz I (2002) An Empirical Analysis of Trades, Orders, and Cancellations in a Limit Order Market, Discussion paper, Duke UniversityGoogle Scholar
  12. Dufour A, Engle RF (2000) The ACD Model: Predictability of the Time between Consecutive Trades, Discussion paper, ISMA Centre, University of ReadingGoogle Scholar
  13. Engle RF, Russell JR 1998 Autoregressive conditional duration: a new model for irregularly spaced transaction data. Econometrica 66:1127-1162CrossRefGoogle Scholar
  14. Fernandes M, Grammig J (2001) A Family of Autoregressive Conditional Duration Models, Discussion Paper 2001/31, CORE, Université Catholique de LouvainGoogle Scholar
  15. Foucault T 1999 Order flow composition and trading costs in a dynamic limit order market. J Financ Mark 2:99-134CrossRefGoogle Scholar
  16. Glosten LR 1994 Is the electronic open limit order book inevitable. J Financ 49:1127-1161CrossRefGoogle Scholar
  17. Grammig J, Maurer K-O 2000 Non-monotonic hazard functions and the autoregressive conditional duration model. Econometrics J 3:16-38CrossRefGoogle Scholar
  18. Griffiths MD, Smith BF, Turnbull DAS, White RW 2000 The costs and determinants of order aggressiveness. J Financ Econ 56:65-88CrossRefGoogle Scholar
  19. Hall AD, Hautsch N (2004) A continuous-time measurement of the buy-sell pressure in a limit order book market, Discussion Paper 04-07, Institute of Economics, University of CopenhagenGoogle Scholar
  20. Handa P, Schwartz RA 1996 Limit order trading. J Financ 51:1835-1861CrossRefGoogle Scholar
  21. Handa P, Schwartz RA, Tiwari A 2003 Quote setting and price formation in an order driven market. J Financ Mark 6:461-489CrossRefGoogle Scholar
  22. Harris L 1998 Optimal dynamic order submission strategies in some stylized trading problems. Financ Mark Inst Instrum 7:1-75CrossRefGoogle Scholar
  23. Harris L, Hasbrouck J 1996 Market vs. limit orders: The SuperDOT evidence on order submission strategy. J Financ Quant Anal 31(2):213-231CrossRefGoogle Scholar
  24. Hautsch N 2004 Modelling irregularly spaced financial data—theory and practice of dynamic duration models, vol. 539 of Lecture Notes in Economics and Mathematical Systems. Springer, Berlin Heidelberg New YorkGoogle Scholar
  25. Hollifield B, Miller RA, Sandås P, Slive J 2002 Liquidity supply and demand in limit order markets, Discussion paper, Centre for Economic Policy Research, LondonGoogle Scholar
  26. Lo I, Sapp SG (2003) Order submission: the choice between limit and market orders, Discussion paper, University of Waikato, University of Western OntarioGoogle Scholar
  27. Lunde A (2000) A generalized gamma autoregressive conditional duration model, Discussion paper, Aarlborg UniversityGoogle Scholar
  28. Parlour CA 1998 Price dynamics and limit order markets. Rev Financ Stud 11:789-816CrossRefGoogle Scholar
  29. Pascual R, Veredas D (2004) What Pieces of Limit Order Book Information are Informative? Discussion Paper 2004/33, CORE, Université Catholique de LouvainGoogle Scholar
  30. Ranaldo A 2004 Order aggressiveness in limit order book markets. J Financ Mark 7:53-74CrossRefGoogle Scholar
  31. Russell JR (1999) Econometric modeling of multivariate irregularly-spaced high-frequency data, Discussion paper, University of ChicagoGoogle Scholar
  32. Seppi DJ 1997 Liquidity provision with limit orders and strategic specialist. Rev Financ Stud 1 (1):103-150CrossRefGoogle Scholar
  33. Zhang MY, Russell JR, Tsay RS 2001 A nonlinear autoregressive conditional duration model with applications to financial transaction data. J Econom 104:179-207CrossRefGoogle Scholar

Copyright information

© Physica-Verlag Heidelberg 2008

Authors and Affiliations

  • Anthony D. Hall
    • 1
  • Nikolaus Hautsch
    • 2
  1. 1.School of Finance and EconomicsUniversity of TechnologySydneyAustralia
  2. 2.Department of EconomicsUniversity of CopenhagenCopenhagen-KDenmark

Personalised recommendations