Chapter

High Frequency Financial Econometrics

Part of the series Studies in Empirical Economics pp 133-165

Order aggressiveness and order book dynamics

  • Anthony D. HallAffiliated withSchool of Finance and Economics, University of Technology
  • , Nikolaus HautschAffiliated withDepartment of Economics, University of Copenhagen

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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.

Keywords

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