Where Does Price Discovery Occur in FX Markets?

D'Souza, Chris

doi:10.2139/ssrn.966446

Cited by 8 publications

(1 citation statement)

References 41 publications

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“…As an indicator for predicting the short-term volatility of market prices from the order book information, the volume-synchronized probability of informed trading (VPIN) has been proposed and actively studied [ 16 , 17 , 18 , 19 , 20 ]. In addition, informed trading using the advantage of information such as public news and confidential information has been studied using high-frequency data [ 21 , 22 , 23 , 24 , 25 ]. We believe that it is crucial to gain a deep understanding of their trading behavior in current financial markets, where HFTs provide most of the liquidity.…”

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confidence: 99%

Analysis of Individual High-Frequency Traders’ Buy–Sell Order Strategy Based on Multivariate Hawkes Process

Watari

Takayasu

2022

Entropy

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Traders who instantly react to changes in the financial market and place orders in milliseconds are called high-frequency traders (HFTs). HFTs have recently become more prevalent and attracting attention in the study of market microstructures. In this study, we used data to track the order history of individual HFTs in the USD/JPY forex market to reveal how individual HFTs interact with the order book and what strategies they use to place their limit orders. Specifically, we introduced an 8-dimensional multivariate Hawkes process that included the excitations due to the occurrence of limit orders, cancel orders, and executions in the order book change, and performed maximum likelihood estimations of the limit order processes for 134 HFTs. As a result, we found that the limit order generation processes of 104 of the 134 HFTs were modeled by a multivariate Hawkes process. In this analysis of the EBS market, the HFTs whose strategies were modeled by the Hawkes process were categorized into three groups according to their excitation mechanisms: (1) those excited by executions; (2) those that were excited by the occurrences or cancellations of limit orders; and (3) those that were excited by their own orders.

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