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ROSARIO NUNZIO MANTEGNA

Market reaction to a bid-ask spread change: A power-law relaxation dynamics

  • Autori: Ponzi, A.; Lillo, F.; Mantegna, R.
  • Anno di pubblicazione: 2009
  • Tipologia: Articolo in rivista (Articolo in rivista)
  • Parole Chiave: Financial markets, microstructure, stochastic processes, relaxation phenomena

Abstract

We study the relaxation dynamics of the bid-ask spread and of the midprice after a sudden variation of the spread in a double auction financial market. We find that the spread decays as a power law to its normal value. We measure the price reversion dynamics and the permanent impact, i.e., the long-time effect on price, of a generic event altering the spread and we find an approximately linear relation between immediate and permanent impact. We hypothesize that the power-law decay of the spread is a consequence of the strategic limit order placement of liquidity providers. We support this hypothesis by investigating several quantities, such as order placement rates and distribution of prices and times of submitted orders, which affect the decay of the spread.

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