Why is order flow so persistent?
Order flow in equity markets is remarkably persistent in the sense that order signs (to buy or sell) are positively autocorrelated out to time lags of tens of thousands of orders, corresponding to many days. Two possible explanations are herding, corresponding to positive correlation in the behavior...
| Main Authors: | , , , |
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| Format: | Journal article |
| Language: | English |
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Elsevier
2011
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| _version_ | 1797051965396484096 |
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| author | Toth, B Palit, I Lillo, F Farmer, J |
| author_facet | Toth, B Palit, I Lillo, F Farmer, J |
| author_sort | Toth, B |
| collection | OXFORD |
| description | Order flow in equity markets is remarkably persistent in the sense that order signs (to buy or sell) are positively autocorrelated out to time lags of tens of thousands of orders, corresponding to many days. Two possible explanations are herding, corresponding to positive correlation in the behavior of different investors, or order splitting, corresponding to positive autocorrelation in the behavior of single investors. We investigate this using order flow data from the London Stock Exchange for which we have membership identifiers. By formulating models for herding and order splitting, as well as models for brokerage choice, we are able to overcome the distortion introduced by brokerage. On timescales of less than a few hours the persistence of order flow is overwhelmingly due to splitting rather than herding. We also study the properties of brokerage order flow and show that it is remarkably consistent both cross-sectionally and longitudinally. |
| first_indexed | 2024-03-06T18:26:38Z |
| format | Journal article |
| id | oxford-uuid:0832f1e7-638f-4fac-9e4d-51609c5c9634 |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-06T18:26:38Z |
| publishDate | 2011 |
| publisher | Elsevier |
| record_format | dspace |
| spelling | oxford-uuid:0832f1e7-638f-4fac-9e4d-51609c5c96342022-03-26T09:11:37ZWhy is order flow so persistent?Journal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:0832f1e7-638f-4fac-9e4d-51609c5c9634EnglishSymplectic Elements at OxfordElsevier2011Toth, BPalit, ILillo, FFarmer, JOrder flow in equity markets is remarkably persistent in the sense that order signs (to buy or sell) are positively autocorrelated out to time lags of tens of thousands of orders, corresponding to many days. Two possible explanations are herding, corresponding to positive correlation in the behavior of different investors, or order splitting, corresponding to positive autocorrelation in the behavior of single investors. We investigate this using order flow data from the London Stock Exchange for which we have membership identifiers. By formulating models for herding and order splitting, as well as models for brokerage choice, we are able to overcome the distortion introduced by brokerage. On timescales of less than a few hours the persistence of order flow is overwhelmingly due to splitting rather than herding. We also study the properties of brokerage order flow and show that it is remarkably consistent both cross-sectionally and longitudinally. |
| spellingShingle | Toth, B Palit, I Lillo, F Farmer, J Why is order flow so persistent? |
| title | Why is order flow so persistent? |
| title_full | Why is order flow so persistent? |
| title_fullStr | Why is order flow so persistent? |
| title_full_unstemmed | Why is order flow so persistent? |
| title_short | Why is order flow so persistent? |
| title_sort | why is order flow so persistent |
| work_keys_str_mv | AT tothb whyisorderflowsopersistent AT paliti whyisorderflowsopersistent AT lillof whyisorderflowsopersistent AT farmerj whyisorderflowsopersistent |