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Modeling Herd Behavior and Long-Range Memory in Limit Order Books

Article arXiv papers · Author: Aleksejus Kononovicius et al.
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Summary

This work combines a detailed empirical approach to order book records with a financial herd behavior model to construct a model of order book dynamics. Its stated aim is to reproduce long-range memory in absolute returns and trading activity, linking collective behavior among traders with patterns observed in market data.

The authors compare statistical properties of the model with empirical properties of Bitcoin exchange rates and New York Stock Exchange tickers. They also report that a fracture in the spectral density of high-frequency absolute returns might be connected to convergence toward an equilibrium price. The excerpt does not describe the model equations, datasets, or quantitative fit, and frames the proposed connection as a possibility rather than an established causal result.

Key ideas

  • The model combines empirical order book structure with a financial herd behavior mechanism.
  • It aims to reproduce long-range memory in absolute returns and trading activity.
  • The model's statistical properties are compared with Bitcoin rates and New York Stock Exchange tickers.
  • A spectral density fracture in high-frequency absolute returns may relate to convergence toward equilibrium price.

Tags

Market microstructureStatisticsCryptoEquities
Full text
# Order book model with herd behavior exhibiting long-range memory


# Order book model with herd behavior exhibiting long-range memory









In this work, we propose an order book model with herd behavior. The proposed model is built upon two distinct approaches: a recent empirical study of the detailed order book records by Kanazawa et al. [Phys. Rev. Lett. 120, 138301] and financial herd behavior model. Combining these approaches allows us to propose a model that replicates the long-range memory of absolute returns and trading activity. We compare the statistical properties of the model against the empirical statistical properties of the Bitcoin exchange rates and New York stock exchange tickers. We also show that the fracture in the spectral density of the high-frequency absolute return time series might be related to the mechanism of convergence towards the equilibrium price.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.