Humboldt-Universität zu Berlin - High Dimensional Nonstationary Time Series

IRTG1792DP2018 016

Time-varying Limit Order Book Networks

Wolfgang Karl Härdle
Shi Chen
Chong Liang
Melanie Schienle

This paper analyzes the market impact of limit order books (LOB) taking crossstock
effects into account. Based on penalized vector autoregressive approach, we
aim to identify significance and magnitude of the directed network channels within
and between LOBs by bootstrapped impulse response functions. Moreover, information
on asymmetries and imbalances within the LOB over time would be derived. For
the sample of a NASDAQ blue-chip portfolio during 06-07/2016 we find that LOB
network effects crucially determine prices and bid-ask asymmetries are prevalent.

limit order book, high dimension, generalized impulse response, high frequency, market risk, market impact, network, bootstrap

JEL classification:
C02, C13, C22, C45, G12