Intraday Order Book Depth, Queue Dynamics, and Seasonality
Summary
The document asks how equity order-book depth changes over the trading day, including whether total size follows a particular time pattern and how displayed quotes are distributed across price levels. The answer points to research on queue-reactive order-book dynamics, where insertion, cancellation, and market-order flows are analyzed in relation to the sizes of queues at the best prices and nearby levels. It also references models of order flow, price formation, and the link between book state and subsequent trades or midpoint changes.
For intraday seasonality, the response recommends studying volume curves and stationarity, then describes a figure that relates the size of the first queue to event intensity under different conditions in the opposite queue. The plotted components cover limit-order insertion, cancellations, market orders, and a ratio intended to indicate whether a queue tends to grow or shrink. The material directs readers toward empirical and theoretical research rather than supplying a universal curve or a direct answer about depth growth; patterns may depend on the stocks and market conditions studied.
Key ideas
- Order-book queues can replenish or empty in relation to the sizes of nearby queues.
- Limit-order insertions, cancellations, and market orders can be studied as distinct flows.
- Intraday seasonality research examines how trading activity and order-book dynamics vary over time.
- The relationship between book state and the next trade or midpoint change is a separate object of analysis.
- The cited research does not establish a universal intraday depth-growth curve for equities.
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Full text
# Growth of Order Book size during day
# Growth of Order Book size during day
I am trying to find market-structure research on how the size / depth of the order book changes during the day for equities.
I would expect it to get deeper and deeper and bigger and bigger continously as the day progresses, but I don't have access to order book data to validate this.
Can someone here provide any insight on this topic? Hope this is question is applicable to this site.
For my purposes, I am mainly interested in two things:
- What type of function gives a view of how it grows? Is it logarithmic? Linear? I'm guessing it's linear. Does the growth rate change during the day (for example, much higher in the beginning and towards the end)?
- The distribution of the growth among different price levels. For example, will the ratio $$\frac{\mbox{number of quotes far-from-midpoint}}{\mbox{number of quotes close-to-midpoint}}$$ grow as the day progresses, or does it virtually stay the same?
## Answer by lehalle (score 8, accepted)
https://quant.stackexchange.com/a/9646
We just issued a paper studying and modelling orderbook dynamics, especially the way they replenish or empty Simulating and analyzing order book data: The queue-reactive model. We disclose the way the first queue evolve with respect to the size of others (best opposite and second or third queues).
Other recent papers complement ours:
- a theoretical one explaining how stabilizing behaviours can emerge: Efficiency of the Price Formation Process in Presence of High Frequency Participants: a Mean Field Game analysis
- a PDE (Fokker-Planck) version of the order flows (with an intraday seasonality correction) A Fokker-Planck description for the queue dynamics of large tick stocks
- another one focused on direct analysis of the link between the state of the orderbook and the next event (midprice change or trade) Trade arrival dynamics and quote imbalance in a limit order book
- an economic view of agent behaviour (in a theoretic model) A Dynamic Model of the Limit Order Book.
For intraday seasonalities analysis, have a look at Chapter 3 (From Intraday Market Share to Volume Curves: Some Stationarity Issues) of Market Microstructure in Practice.
Look at Figure 8 of the paper:
On the x-axis you have the current size of the first queue (in Average Event size) and on the y-axis you read an intensity. Three colours figure the state of the best opposite queue (i.e. the best ask if you consider the best bid): in bleue for small sizes, green medium sizes and red large sizes:
- Upper right chart gives you the limit order insertion flow
- Upper left one the cancellations
- Lower left the market orders
- and lower right the ratio you have in mind (one means "nothing changes", lower than 1 the queue decreases, larger than one it increases).Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.