Long-Memory in an Order-Driven Market

37 Pages Posted: 5 Nov 2006

See all articles by Blake LeBaron

Blake LeBaron

Brandeis University - International Business School

Ryuichi Yamamoto

Waseda University - School of Political Science and Economics

Date Written: October 2006

Abstract

This paper introduces an order-driven market with heterogeneous investors, who submit limit or market orders according to their own trading rules. The trading rules are repeatedly updated via simple learning and adaptation of the investors. We analyze markets with and without learning and adaptation. The simulation results show that our model with learning and adaptation successfully replicates long-memories in trading volume, stock return volatility, and signs of market orders. We also discuss why evolutionary dynamics are important in generating these long memory features.

Keywords: Microstructure, agent-based, long memory, order flow

JEL Classification: G10, G29

Suggested Citation

LeBaron, Blake D. and Yamamoto, Ryuichi, Long-Memory in an Order-Driven Market (October 2006). Available at SSRN: https://ssrn.com/abstract=942305 or http://dx.doi.org/10.2139/ssrn.942305

Blake D. LeBaron (Contact Author)

Brandeis University - International Business School ( email )

Mailstop 32
Waltham, MA 02454-9110
United States
781-736-2258 (Phone)
781-736-2269 (Fax)

Ryuichi Yamamoto

Waseda University - School of Political Science and Economics ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050, Tokyo 169-8050
Japan

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